Dubai: The UAE posted a current-account surplus of $65 billion (Dh239.07 billion) in 2013, and should maintain large surpluses over the next two years thanks to elevated global oil prices, said Bryan Plamondon, Senior Economist, IHS Economics.
Country’s current-account surplus held strong at $64.7 billion (16 per cent of GDP) in 2013, following an upwardly revised surplus of $69 billion (18 per cent of GDP) in 2012.
The foreign trade surplus reached a new high last year, as elevated oil prices, higher output, and strengthening external demand helped drive 8.3 per cent growth in exports.
“IHS expects slimmer, but still large external surpluses for the UAE in 2014 and 2015. We project the current account to edge down to a surplus of $50.8 billion (12 per cent) in 2014, as the trade surplus drops to $127.1 billion under our baseline oil-price assumption of $109/barrel,” said Plamondon.
Merchandise exports are seen posting moderate growth of 6.3 per cent in 2014, to $402.5 billion, reflecting the constrained oil-export earnings. Non-oil exports should provide some underlying strength thanks to healthy demand from Asia, the UAE’s main destination for goods trade. Additionally, UAE re-exports, which weakened because of Western sanctions imposed on Iran, which previously had accounted for about 20 per cent of UAE re-exports, could see some lift given the six-month interim accord between Iran and the P5+1 countries.
Before sanctions, Dubai, which is the UAE’s trading hub and accounts for three-quarters of total re-exports, had strong trade and business links with Iran, but these shrunk considerably with traders and businesses coming under greater pressure and constraints in dealings with the Islamic Republic, especially regarding trade financing.
“Strong domestic demand is expected to fuel import growth of 14 per cent in 2014, with the import bill rising to $275.4 billion. Meanwhile, tourism and hospitality services should see further growth in 2014 and remain supportive to the UAE’s current-account balance,” said Plamondon.
If oil prices were to average $100/barrel in 2014, the current-account surplus would narrow to $43.7 billion (10 per cent of GDP) this year. In contrast, if oil prices average $120/barrel, the current-account surplus would rise to $58.9 billion (13 per cent of GDP) in 2014. IHS economist sees greater upside risk to the oil-price forecast now with the instability and violence in Iraq.
The International Monetary Fund which concluded the Article IV Consultaion recently said the macroeconomic outlook of the UAE is positive with economic growth expected to remain strong at about 4.75 per cent in 2014 and 4.5 per cent in coming years. Growth will likely be driven by the non-hydrocarbon economy, which is expected to grow at around 5.5 per cent this year and beyond.
The IMF sees external downside risks decline in oil prices, which could be triggered by deceleration of global demand or coming-on-stream of excess global supply capacity. The UAE’s substantial foreign assets and fiscal surplus provide buffers against moderate or short-lived shocks.
