ABU DHABI — In a recent report released by S&P Global Ratings, it is projected that Abu Dhabi’s real GDP growth will experience a significant slowdown in 2023. The city-state, known for its reliance on oil revenues, is expected to face a broadly flat economic performance due to the implementation of production cuts by the OPEC+ alliance. These measures were put in place to address global oil supply concerns, resulting in a decline in activity within the hydrocarbon sector.
According to S&P analysts, the OPEC+ agreement will lead to a contraction of approximately 5% in the hydrocarbon sector in 2023. However, the report suggests that the nonhydrocarbon sector will continue to grow at a rate of around 4%, albeit under tighter monetary policy conditions. This growth in non-oil industries is predicted to be sustained at a similar rate until 2026, contributing to an overall GDP growth of approximately 4% over the same period.
The report acknowledges that Abu Dhabi’s oil production is anticipated to rebound in the medium term as OPEC+ quotas are lifted and production capacity expands. The state-owned oil company, Abu Dhabi National Oil Co. (ADNOC), has outlined plans to increase production capacity to 5 million barrels per day (bpd) by 2027, up from the current level of approximately 4 million bpd. However, S&P expects oil production to decline to an average of 2.9 million bpd in 2023, in line with the October 2022 OPEC+ announcement. The projection takes into account an average production of 3.07 million bpd in 2022. S&P further anticipates a gradual recovery in oil production in 2024 (3.05 million bpd) and 2025 (3.15 million bpd), with the potential for even higher levels given the expansion plans.
While the OPEC+ production cuts present short-term challenges to Abu Dhabi’s economy, the report emphasizes that the city-state’s long-term growth prospects remain positive. As oil production recovers and diversification efforts continue, Abu Dhabi aims to strengthen its nonhydrocarbon sectors and reduce dependence on oil revenues. The government’s strategic initiatives, combined with the resilience of its economy, are expected to support an average GDP growth rate of 4% through 2026.
The anticipated challenges and opportunities ahead for Abu Dhabi’s economy underscore the need for prudent economic policies and strategic decision-making. As the city navigates the impact of global oil market dynamics, it seeks to sustain growth, nurture diversification, and solidify its position as a key player in the global economy.
