In many ways, the financial services industry is a bellwether of the health of the economy. Financial institutions allocate money from those who have savings or capital, to those who need it to invest in growing businesses. Demand for financing is often an indication that companies are investing and expanding their activities. Demand for mortgages can be an indication that the property market is strengthening, while an increase in demand for consumer financing might be good news for retailers and others in services industries.
This is why the good second-quarter results released by Emirates NBD are an indication of the strength of the UAE economy — although analysts correctly warn against reading too much into it, for now. The National Bank of Abu Dhabi (NBAD) has also reported good results for the first half of the year, as has Rakbank for the second quarter. There are expectations that other UAE financial institutions will follow suit. If they do so, it will be an important signal that the economy is continuing to cope with the global economic and financial volatility.
The UAE stock markets have been among the best performing in the world, despite some volatility — in part because of their inclusion in the MSCI Emerging Market Index. The country is also perceived to be a pillar of political and economic stability in a region that has been wracked by civil conflict. As a result, property, retail, tourism and other services industries have benefitted from increased consumer and investor interest.
The global economy is expected to remain weak and volatile for the foreseeable future, in part because of the persistent European debt crisis and the US Federal Reserve reducing its economic stimulus programme. Already this has resulted in volatility for emerging market indices and currencies.
While this presents a challenge for the UAE as a trading nation and a major oil exporter, the results of many of its companies and financial institutions show that the economy has the ability and resources to survive and thrive through the most difficult of times.
