Dubai: Hydrocarbon-based Gulf Cooperation Council (GCC) economies are using their fiscal strength to drive near-term growth and diversify their economies to reduce long-term risks, Standard Chartered economists said in mid-year outlook for the region’s economies.
“In the Middle East, the growth outlook for the oil-rich GCC is positive, despite ongoing tensions in other parts of the region,” said Marios Maratheftis, global head of macro research at Standard Chartered Bank.
While the UAE’s real gross domestic product is projected to grow 3.4 per cent and 3.6 per cent respectively in 2013 and 2014, Saudi Arabia’s GDP is expected to grow 4.8 per cent and 4.2 per cent respectively in the same period.
For the UAE, the economic outlook is positive. Dubai continues to perform well, driven by the core pillars of its economy such as trade, tourism retail and retail sectors and in Abu Dhabi the resumption of strong government investment is driving non-hydrocarbon growth.
While Abu Dhabi’s property sector is widely seen as stabilising, in the past 12 months in Dubai, residential prices have risen by 38 per cent for apartments and 24 per cent for villas, with rents up by 20 per cent and 17 per cent respectively.
“Dubai’s measures to ensure healthy pricing dynamics in the property market are a move in the right direction,” said Shady Shaher, senior economist, Middle East and North Africa (Mena) at Standard Chartered.
Confidence boost
Analysts say, if Dubai emerges successful in its bid to host Expo 2020, it will be big confidence boost for the economy. “In the medium term, the economy would benefit from an estimated $6.9 billion (Dh25.3 billion) earmarked for infrastructure projects around the event,” said Carla Slim an analyst at Standard Chartered.
In the banking sector, liquidity dynamics in the UAE have stabilised following a period between 2009 and 2011 when loan-to-deposit ratios constantly breached the 100 per cent level. The improvement was brought about by an increase in the deposit base: overall deposits in the system rose by 12 per cent over the 12 months to July 2013.
A number of factors drove this, in our view. There were increased government receipts from the hydrocarbon sector, improved corporate balance sheets and external inflows owing to the UAE’s safe-haven status. Private-sector credit growth, however, has remained weak.
“We think this reflects a still-reluctant private sector, adopting a ‘wait and see’ approach. However, this might be changing, with a large UAE corporate tapping the market in September for a $1.5 billion loan. As the economy improves, we see scope for a recovery in private-sector credit underpinned by healthy lending dynamics,” said Shaher.
Government spending
Saudi Arabia’s economic performance has been robust so far in 2013, despite the absence of a significant boost from the hydrocarbon sector. Government spending is one of the main growth drivers.
Overall the credit conditions in Saudi Arabia remains healthy. While the loans to deposit ratio fell to 80.5 per cent in June from 82.3 per cent in April. “Private-sector credit growth was 4.4 per cent for the same period. Total bank deposits rose 2.3 per cent in June. As large-scale projects continue to materialise, public-private or private-only projects are the major credit drivers. We expect private-sector credit growth to reach 6.5 per cent by end-2013,” said Shaher.