Dubai: The economy enjoyed robust growth in the first half of 2014, supported by higher oil production and continued strong recovery in domestic demand.
In its 2014 second half outlook for the country, the Institute of International Finance (IIF), a global association of more than 470 financial institutions, said the country’s economy is benefiting from huge private capital inflows.
“Leading economic and financial indicators in the first three quarters of this year point to a further acceleration of non-oil growth. Monetary and fiscal policies are expected to remain broadly accommodative. We expect overall growth to moderate from 5.2 per cent in 2013 to 4.6 per cent in 2014 due to a smaller contribution to growth from oil production,” said Garbis Iradian, deputy director for the Africa and Middle East Department of IIF.
The UAE’s non-hydrocarbon growth is expected to be at 5.2 per cent in 2014, driven by tourism, transportation, trade and a strong recovery in the real estate sector. The completion of major projects and the preparations to host the World Expo 2020 should keep growth in Dubai slightly above 5 per cent in the coming years.
According to IIF, the UAE has been the beneficiary of private capital flows from other Middle East and North Africa (Mena) countries following the political unrest that hit the Arab world from 2011. In addition, there has been an influx of wealth from emerging markets like India, Russia, and China.
Foreign direct inflows (FDI) more than doubled to $12 billion (3 per cent of GDP) while portfolio flows from equity exchange-traded funds and mutual funds to the UAE increased five-fold from 2011 to 2013.
While the capital flows to domestic banks rose sharply, foreign banks’ claims on non-bank UAE sectors have been recovering gradually. The restructured and deleveraged balance sheets are helping many government-related entities (GREs) to raise funds through syndicated loans and bond issuance, allowing them to benefit from the low interest-rate environment.
Reflecting the improved credit conditions, Dubai’s sovereign credit default swap (CDS) spreads and bond yields continue to fall and the equity index has risen sharply.
According to the IIF’s estimates, the fiscal balance of the UAE registered a surplus of 10.2 per cent of GDP in 2013.
“Based on our forecast of an average Brent price of $105 [per barrel] in 2014 and no increase in oil exports in volume terms, the external current account balance will still record large surpluses in 2014 and 2015, equivalent to 12.5 per cent of GDP and 9.6 per cent, respectively,” said George Abed, senior counsellor and IIF director for the Africa/Middle East region.
