UAE Economy: GDP, Inflation, and Unemployment Analysis

This report provides a comprehensive analysis of the UAE's economy, examining key macroeconomic indicators such as Gross Domestic Product (GDP), inflation, and unemployment. It begins with an introduction to the UAE's economic structure, highlighting its reliance on oil and efforts towards diversification. The report then reviews relevant literature on GDP, inflation, unemployment, interest rates, and trade balance, establishing a theoretical framework for the analysis. The core of the report analyzes historical data on GDP, GDP growth rate, unemployment, and inflation in the UAE. The analysis includes trends, fluctuations, and contributing factors to these economic indicators. The report also includes an overview of the UAE's economy, including its main industries, external trade, and public finances. The report concludes with a summary of findings and recommendations for the UAE's economic policymakers. The report fulfills the requirements of an ECO5002 midterm assignment, including an introduction, literature review, analysis, and conclusions with recommendations.

Running head: UNEMPLOYMENT, INFLATION AND GDP OF UAE
Unemployment, Inflation and GDP of UAE
Name of the Student
Name of the University
Course ID

1UNEMPLOYMENT, INFLATION AND GDP OF UAE
Table of Contents
Introduction................................................................................................................................2
Literature Review.......................................................................................................................4
Gross Domestic Product.........................................................................................................4
Inflation..................................................................................................................................5
Unemployment.......................................................................................................................5
Interest rates...........................................................................................................................6
Trade balance.........................................................................................................................6
Analysis......................................................................................................................................7
Gross Domestic Product.........................................................................................................7
Unemployment.......................................................................................................................9
Inflation................................................................................................................................10
Conclusion and Recommendation............................................................................................11
References................................................................................................................................13

2UNEMPLOYMENT, INFLATION AND GDP OF UAE
Introduction
The economy of UAE is known as a tribal federation consisting seven emirates
occupying southeastern portion of Arabian Peninsula. The nation is considered to have one of
the most secure economy in the world. The oil dependent economy controls nearly 98 billion
barrels of oil which constitute 10 percent of total oil reserve of the world. The country also
has reserve of 212 trillion cubic feet of natural gas. This is the fourth largest amount of gas
reserve in the world only after Russia, Qatar and Iran (Alfaki & Ahmed, 2017). The economy
has utilized its natural resources and strategic location for becoming one of the wealthiest and
most modern economy in the world. The economy has explored both petroleum and non-
petroleum sector. Economic growth of UAE is mostly contributed from high oil price. Oil
also provides UAE government one major source of revenue for financing different
infrastructural projects.
The main occupations of people in UAE include fishing, pearling, commerce and
others. The economy is highly dependent on imported technology and technological
assistance. Because of very hot climate of UAE, there are only few regions of UAE which is
suitable for large scale farming. The economy has invested huge amount of money for
irrigation and advanced technology. Despite this, the economy is unable to produce sufficient
amount of basic commodities. As a result, UAE has opened up its economy.
Today UAE is an open economy having high per capita income. The economy
successfully maintains sufficient amount of trade surplus annually. The nation has made
efforts to reducing dependency on oil sector (Dhabi, 2016). Successful efforts towards
economic diversification has have helped to reduce share of oil and gas sector in the GDP to
30 percent.

3UNEMPLOYMENT, INFLATION AND GDP OF UAE
Since the discovery of reserved oil back to 60 years, the economy has undergone
significant transformations. This shifts UAE from a small developed region of desert
principalities to a modern state having high living standard. Government has made
considerable efforts to promote employment in the nation. Government expenditure has been
increased for creating new jobs. Focus has also been given on expansion of infrastructure and
encourage involvement of private sector for greater job opportunities. In order to encourage
export, the economy has 100 percent free trade zone that allows foreign ownership up to 100
percent along with zero taxes in order to attract investment from abroad.
The economy faced a recession in 2009 due to the global financial crisis in 2008-09.
During this time assets price were deflated. The monetary authorities of UAE tried to tackle
the situation by raising spending and increasing flow of liquidity in UAE’s banking sector.
The global financial crisis hit the hardest to the economy of Dubai because the economy was
highly exposed to the volatile real estate market (Zahlan, 2016). Dubai lacked the needed
cash to fulfill debt obligations adding to concern regarding solvency of banking sector. Dubai
economy finally recovered crisis by taking $20 billion from central bank UAE for bailout.
Dependency of the economy on oil sector is one long term challenge for the economy.
The low prices of oil have caused the economy to reduce expenditure which include some
social programs as well. UAE however possessed sufficient assets to cover the deficit.
Among the non-oil sector, the most important sector is tourism. Other non-oil sector
contributing to the economy are construction, expansion of manufacturing sector and
gradually growing service sector. Today UAE has become second largest economy in the
Middle East.
Table 1: Overview of UAE economy
Statistics
GDP $424.635 billion (nominal)

4UNEMPLOYMENT, INFLATION AND GDP OF UAE
$723.676 billion (PPP)
GDP growth 0.80%
2.60%
GDP per capita $40,771 (nominal)
$69,381 (PPP)
GDP by sector
Agriculture (0.9%)
Industry (49.8%)
Service (49.2)
Inflation 3.08%
Unemploymen
t 1.60%
Main
Industries
Petroleum, petrochemicals, fishing, aluminum, cement, fertilizer,
construction, materials, handicrafts and textiles.
External
Exports $308.5 billion
Imports $229.2 billion
Exported goods Crude oil, natural gas, dates, dried fish
Imported
goods Machinery and transport equipment, food and chemicals
Export partners India, Iran, Japan, China, Switzerland and South Korea
Import
partners China, United States and India
Public finances
Public debt 19.7% of GDP
Budget balance (-0.2%) of GDP
Revenues 110.2 billion
Expenses 111.1 billion
(Source: cia.gov, 2019)
Literature Review
In determining state of the economy, the economic indicators need to be evaluated.
The important economic indicators include the Gross Domestic Product, growth in GDP,
inflation, unemployment, trade balance, interest rate, money supply and others.
Gross Domestic Product
The most important economic indicator for evaluating economic performance of a
nation is the Gross Domestic Product. It is an important measure for representing aggregate

5UNEMPLOYMENT, INFLATION AND GDP OF UAE
economic output. By definition, Gross Domestic Product of a nation is the market value of all
the produced final goods and services within the country in a specific period of time
(Goodwin et al., 2015). Goods are measured at the market price of the produced goods and
services. When goods are valued at the current year market price then it is termed as nominal
GDP. If goods are valued at the market price of a fixed base year then it is known as real
GDP. There are different approach of estimating GDP of a nation. Under expenditure
approach GDP is computed as a sum of four components – consumption, investment,
government expenditure and net export. The related measure to the Gross Domestic Product
are GDP growth rate and per capita GDP. GDP growth rate refers to percentage change in
GDP from one year to another. GDP growth rate represents how the economy grows over
time. The positive GDP growth figure represents that GDP is growing over time. Per capita
GDP is indicator of average living standard of a person. Per capita real GDP is obtained by
dividing GDP by population (Fatas & Mihov, 2013). GDP and the related measures are
therefore important measures for representing economic performance.
Inflation
Inflation is a measure of movement of price level of a nation. Inflation refers to the
sustained increase in average prices of all goods and services in the economy. In other words,
inflation is the gradual increase in general price level of a nation. Two common types of
inflation are – demand-pull inflation and cost-push inflation. Demand pull inflation is the
inflation caused due to an increase in aggregate demand of the economy. This type inflation
is caused as aggregate demand does not match with aggregate supply. Demand-pull inflation
occurs at times when the economy operates near or at full employment (Borio, Drehmann &
Tsatsaronis, 2014). Cost-push inflation on the other hand occurs due to an increase in the cost
of production. As production cost increases, aggregate supply decreases given the aggregate
demand. Because of supply shortage price increases. Inflation not only affects the average

6UNEMPLOYMENT, INFLATION AND GDP OF UAE
price level but also affects interest rate in the economy. With increase in inflation rate, real
interest rate decreases and vice versa.
Unemployment
Unemployment is a useful measure for tracing labor market performance. Labor force
statistics of a nation is generally categorized in three groups – employed, unemployed and not
in the labor force. A person in the labor force is classified as unemployed when despite being
willing to do work, the person is unable to find a suitable job. Unemployment costs the entire
economy in terms of loss in output often estimated to be billions of dollars. Rate of
unemployment represents the percentage of unemployed people in total labor force. Four
common categories of unemployment are job losers, reentrant, job leavers and new entrants.
Job losers are those who are terminated or laid off involuntarily (D'Agostino, Gambetti &
Giannone, 2013). Individuals who previously have full time jobs but have left the labor force
and now again joined labor force and are looking for job are called reentrants. Job leavers are
those who voluntarily quit their jobs. A new entrant is a person who has never worked in a
full-time job for at least two weeks or longer. The major types of unemployment that an
economy suffers include structural unemployment, frictional unemployment, cyclical
unemployment and seasonal unemployment.
Interest rates
Interest rate is a lagging indicators of economic performance of an economy. Rate of
interest represents borrowing cost of money and is based on bank rate as determined by the
central bank of a nation. Interest rate by controlling borrowing cost determines level of
investment. Higher the rate of interest, higher is the borrowing cost and hence, lower is the
investment level (Baker, Bloom & Davis, 2016) If interest rate decreases, borrowing cost

7UNEMPLOYMENT, INFLATION AND GDP OF UAE
decrease as well increasing the level of investment. Interest rate therefore by affecting level
of investment influence economic growth of the nation.
Trade balance
For an open economy, trade balance is an important macroeconomic indicator. It is
measured as export less import. A positive trade balance implies exports exceed imports
while a negative trade balance implies exports fall short of imports (Agenor & Montiel,
2015). A positive trade balance is supportive for economic growth.
Analysis
This section evaluates economic performance of UAE based on the historic data on
GDP, unemployment and inflation for the past few years.
Gross Domestic Product
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
150000000000
200000000000
250000000000
300000000000
350000000000
400000000000
450000000000
Real GDP
Year
GDP (constant US $)
Figure 1: Trend in real GDP in UAE
(Source: data.worldbank.org., 2019)

8UNEMPLOYMENT, INFLATION AND GDP OF UAE
The figure above summarizes trend in real GDP in UAE. As obtained from the above
figure real GDP constituted a steep upward rising trend overtime. The recorded as 201.008
billion. Since then GDP continued to expand and reached to $300.997 billion in 2008. After
that GDP declined to $285 billion because of economic recession caused due to global
financial crisis in 2008. However, the economy started to recover since 2010 and real GDP
began to increase. GDP increased to $392.773 billion in 2018.
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Real GDP growth
Year
GDP growth rate
Figure 2: Trend in real GDP growth rate
(Source: data.worldbank.org., 2019)
The economic growth of UAE constituted a fluctuating trend. In the beginning of the
decade, GDP growth rate was as low as 1.40 percent. GDP growth continued to increase
since then and reached to 9.57 percent in 2004. Growth suddenly fell to 4.86 percent in 2005
and reached to the highest level of 9.84 percent in 2006. Due to the global financial crisis
economy accounted a negative growth rate of -5.24 percent in 2009 (Al-Shayeb & Hatemi-J,
2016). With economic recovery, growth rate again became positive. The economy recorded a
relatively smaller growth rate of 1.42 percent in 2018.

9UNEMPLOYMENT, INFLATION AND GDP OF UAE
One reason for economic success of UAE is that it successfully diversifies its
economy from a state of only dependency on oil and gas sector. This is the reason why the
economy has experienced a steady annual growth rate along with a relatively stable state of
inflation. GDP growth faced a downturn in 2008 with real estate sector suffering the highest.
After the financial crisis the economy successfully achieved an average growth of 5% in the
next five years. In the economic success of UAE, participation and expansion of international
trade has played a crucial role (Hamdan, 2016).
Unemployment
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
1.50
1.70
1.90
2.10
2.30
2.50
2.70
2.90
3.10
3.30
Unemployment Rate
Year
Rate of unemployment
Figure 3: Unemployment trend in UAE
(Source: data.worldbank.org., 2019)
The recorded rate of unemployment in UAE in 2001 was 2.40 percent. The
unemployment rate in UAE continued to increase and was recorded to be as high as 3.12
percent in 2005. After that unemployment rate in UAE began to decline continuously. After
the hit of global financial crisis unemployment rate increased slightly but thereafter
unemployment rate continuously decreased and became as low as 1.64 percent in 2016
(Hassan, 2014). In recent years, unemployment rate in UAE again started to increase with

10UNEMPLOYMENT, INFLATION AND GDP OF UAE
unemployment rate recorded to be 2.46 percent and 2.58 percent in 2017 and 2018
respectively.
The unemployment rate in UAE is recorded to be the lowest in Dubai. Unemployment
rate in Dubai was just 0.5 percent in 2018. The lowest unemployment rate in Dubai attributed
from policies like granting visas to investors, employees, students and other persons living in
equivalent status subject to the condition that the person if belongs to the working age
population will not be allowed to stay in the country without having a job (gulfnews.com.,
2019).
Inflation
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Inflation Rate
Year
Rate of inflation
Figure 4: Inflation trend in UAE
(Source: data.worldbank.org., 2019)
The figure above summarizes trend in inflation rate in UAE. The recorded inflation
rate in the economy in the year 2001 was 2.80 percent. After that inflation started to increases
and reached to the highest level of 12.25 percent. In 2009, inflation rate declined to 1.56

11UNEMPLOYMENT, INFLATION AND GDP OF UAE
percent in 2009. Since then inflation remained at the stable state with average inflation
remaining around 2 percent (Alshamsi, Hussin & Azam, 2015).
After the global financial crisis, recovery in the inflation rate is mostly due to the
domestic factors. Non-tradable inflation in UAE represents 63 percent of total consumer price
index. Inflation rose to 4.7 percent in 2015. This was primarily due to the decision of
government to remove subsidies from energy (bis.org, 2019). In contrast prices of services
and other non-tradable items remained stable. Weakness in the tradable inflation was mostly
attributed from non-food items.
Conclusion and Recommendation
The essay summarizes economic performance of UAE with special attention given on
GDP, inflation and unemployment rate. The oil dependent economy of UAE is now become a
modern state accounting a stable performances measured in terms of different economic
indicators. Heavy reliance on oil and gas sector is one significant challenge for the economy.
The economic analysis reveals that the economy experienced a considerable downturn after
the global financial crisis mainly due to downturn in real estate sector. The economy is an
open economy that successfully maintained a surplus in the trade balance. Government of
UAE provides significant support to the economy. Several attempts of government for
creating new jobs have helped to lower unemployment by enhancing employment
opportunities. The essay mainly analyzes GDP, inflation and unemployment of UAE for the
last eighteen years. Real GDP in UAE has increased steadily overtime. So far as GDP growth
is concerned growth rate has been fluctuated over time. The current growth rate is 1.42
percent which is below the standard growth rate of 3 percent. Unemployment though has
though declined over time but in recent years unemployment has increased with national
unemployment reaching to 2.58 percent in 2018. In case of trend inflation rate, inflation rate

12UNEMPLOYMENT, INFLATION AND GDP OF UAE
continued to increases till 2008. After that, inflation continued to decrease with average
inflation remaining at 2 percent.
The discussion so far has made suggests that the biggest problem of the economy of
UAE is highly dependent on the oil sector. Ministry of economic affairs should focus on
diversifying the economy. Apart from petroleum and related industries, other important
industries of the economy are aluminum, cement, textiles, fertilizers, construction, materials,
handicrafts and textiles. Government should encourage growth of these industries by
providing subsidies outside the energy sector. As the economy diversified, the economic
exposure to fluctuating global oil price reduces. Dubai though has recorded lowest
unemployment rate in the world, there are other regions in UAE where unemployment still
remains a problem. Focus should be given on lowering the unemployment rate in other
regions as well. For this the ministry should conduct different education and skill
development program. The inflation rate in UAE remained mostly within the central bank’s
targeted inflation rate. Inflation rate in 2018 has increased to 4.07 percent. The monetary
authority at this stage should adapt a tight monetary policy to control inflation.

13UNEMPLOYMENT, INFLATION AND GDP OF UAE
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15UNEMPLOYMENT, INFLATION AND GDP OF UAE
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