INTRODUCTION:The United Arab Emirates is a federation of seven emirates including Abu Dhabi( the metropolis), Ajman, Dubai, Sharjah, Ras al-Khaimah, Fujairah and Umm al-Quwain, being established on 2 December 1971. The UAE’s economy was primarily based on fishing and pearl industry in the mid-20th century. Its economy transformed rapidly when oil resources were discovered and oil exports began in the 1960s. The UAE’s GDP Per Capita is on par with those of the leading Western European countries and it has been named the most competitive economy in the Arab World by the World Economic Forum. Its oil reserves are the seventh-largest in the world while its natural gas reserves are of the world’s seventeenth largest.
In the following section, the UAE’s production output performance, labour market and price level will be discussed. PRODUCTION OUTPUT PERFORMANCE ANALYSIS:Real GDPReal GDP is an inflation-adjusted measure which reflects the values of final goods and services produced by an economy within a given year. It can show a more accurate trend of economic growth in a more efficient way. In this case, for the years 2004-2013, the United Arab Emirates’s real GDP performance,(as shown below) increased substainably from US$147.
8 Billion to US$315.5 Billion which was the double of the former in year 2004 and 2008 respectively. This eventually diminished to US$253.5 Billion in 2009, and again increased continuously to US$390.
4 Billion in 2013. It is a good deed for the United Arab Emirates’s economy to be back on the rails and do even better than the last time. The United Arab Emirates faced an economic crisis aound 2008-2009 owing to many reasons. One being the serious global financial crisis leading to the recession of UAE’s economy.
The stock market was unstable and was in a continuous freefall at that time. The Dubai stock market fell 68.51% in November 2008 encountering an 1.
3 billion dollars loss while the Abu Dhabi market fell 46.48% in June 2008 encountering an 1.52 billion dirham loss. There was also a violent drop in the price of crude oil. Another being the burst of real estate bubbles which caused a large amount of bad debts to the bank, resulting to the government having to bail them out.
The UAE’s economy was in turmoil and that it induced the government to borrow money causing a huge sum of debt which nearly exceeded the affordability limit and was hard to get recovered.However, the government managed to get the economy back on track with strong rebound as it made a great effort to improve further on the export sector. More resources and capital were allocated to the manufacturing industries so as to develop a diversified economy and more importantly, diversify their source of income other than oil revenues. The amount of exports witnessed a dramatical rise from 2009 to 2013. Making such an extensive recovery, it is obvious that UAE’s economic performance is indeed strong.Real GDP Growth RateThe Real GDP Growth Rate is the annual percentage change of a country’s real GDP to measure the economic growth adjusted for inflation. According to the Real GDP Growth Rate, United Arab Emirates was in an unsteady state which ranged from 4.9% to 9.
8% between 2004 and 2006 but still stable in a way that no great changes occurred. Nevertheless, there was a dramatic change starting from 2007 and ended in 2011. It plummeted significantly to -5.2% in 2009. Once again, the unconstant but stable state of UAE’s real GDP growth rate began in the late 2011 to 2013 ranging from 5.
8% to 6.4%. As mentioned in the Real GDP section, the UAE suffered from the economic crisis and then recovered. During this tough period, it replaced production with research and development. Its financial revenue no longer relied just on oil production and export but it started to develop non-oil sector so there were many other ways to expand income.
The imports decreased while the exports increased. It highly contributed to the recovery of the economy. On the other hand, the UAE failed to maintain high stability of its GDP owing to the incremental amount of government expenditure on goods and services as well as the locals’ personal consumption expenditures. The higher gross private domestic investment was also an indispensable factor.
GDP Per CapitaGDP Per Capita is the standard of living depends on GDP per person. It is the GDP divided by the whole population of the United Arab Emirates. According to the graph shown below, the collected data is almost identical with the above “Real GDP” graph. There was an upturn from 2004 to 2006 as the UAE was in an economic boom. The income of the population was higher so they could afford to spend more on services and goods. Whereas there was a sharp downturn starting from 2007 and ended in 2010 as the UAE was in serious economic recession. Many people were unemployed and the others’ income lessened. The government cut services and subsidies.
Therefore, people spent less and the GDP Per Capita dropped. LABOUR MARKET ANALYSIS:The unemployment rate is the percentage of the labour force that is unemployed. It is a lagging indicator as it generally rises or falls in the wake of changing economic conditions, rather than anticipating them. People who are classified to be unemployed lose or leave their job and search for another job. The unemployment rate of the UAE was around 3.2% in 2004 and 4.2% which was the peak within 10 years in 2009, growing steeply.
It then dropped slightly each year to 4.0% in 2013. It shows an increasing unemployment trend overall from 2004 to 2013. There are three typical types of unemployment in an economy.
Frictional unemployment is short-term unemployment that arises from normal labour market turnover. Workers are usually jobless by choice and it takes time for them to match with a new ideal job since the market is heterogenous and dynamic. Structural unemployment is long-term and chronic unemployment created by changes in technology and foreign competition that change the skills needed to perform jobs or the locations of jobs.
People are willing and able to work but cannot find a job due to barriers like the lack of required skills and communication languages. Cyclical unemployment is the fluctuating unemployment occurs during periods of recession in the business cycle. It may be short-term or long-term, depending on the degree of the economic recession or the decline in real GDP.
Obviously, one of the types of unemployment in the UAE was cyclical unemployment to a large extent. When it came to economic slowdown, personal consumption and demand decreased and so did the business revenues. As a result, companies laid off workers to maintain profit margin. To achieve full employment, the UAE government applied fiscal policy to manage output and employment. It increased spending while instituted a tax cut. Individuals and businesses had more money to spend than before, leading to a raise in overall demand and so more workers were needed.
Another type of unemployment in UAE was structural unemployment. There was a mismatch between the jobs available and the skill levels of the unemployed. A large influx of skilled expatriates labour made it difficult for some groups of national to find jobs, especially when their experience and skills became outdated due to the change of production output. To tackle with this problem, the government set a new labour policy to allocate more jobs in public as well as private sector which were previously filled by the expats for the nationals. It also asked the educational institutions to close the gap between academic programs and labour market through practical and specialised training. Those unemployed with low level of skills and an intermediate level of education were able to improve their ability and re-enter the job market.PRICE LEVEL ANALYSIS:Inflation is the rate at which the general level of prices for goods and services is rising, consequently, the purchasing power of currency is falling. It is vital for the Central banks to limit inflation and avoid deflation so as to keep the economy run smoothly and stably.
The inflation rate is the percentage change in the price levels from one year to the next. The Consumer Price Index which measures the average of the prices paid by urban consumers for a fixed bundle of consumer goods and services, is used to indicate inflation. The inflation rate of the UAE in 2004 was around 3.2%.
It went up fiercely annually and reached a peak to 12.3% in 2009 when the economic recession took hold. After recovery, it dropped abruptly to -0.4%, reaching a trough, in 2010.
Thanks to the policy the government adopted, its inflation rate resumed normal level in the following few years and it was nearly 0.6% in 2013. There are two main causes of inflation. Demand-pull inflation results from the excess of aggregate demand for goods and services relative to aggregate supply. According to the supply and demand model, the demand curve shifts rightward when demand increases.
If the supply remains constant and the quantity demanded exceeds the quantity supplied, the equilibrium quantity increases and equilibrium price rises due to the shortage of that goods, resulting in inflation. The other one is Cost-push Inflation resulting from a sudden increase in the cost of production. It can be linked with an increase in the cost of raw materials or wages. When the demand of related goods keeps consistent, the higher the cost of production, the fewer the supply or output. To compensate for it, the producers raise the selling price in order to maintain the profit levels.
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