UAE economy to grow 3.7% despite global headwinds

Dubai: In a world afflicted by trade wars, a rising cost of funds and geopolitical issues, global economic growth is likely to slow, but for the UAE things are looking up.

The country’s real gross domestic product (GDP) is expected to grow 3.7 per cent this year, higher than the 2.9 per cent forecast for 2018 and the 0.8 per cent growth achieved in 2017, according to the latest economic outlook figures from the International Monetary Fund (IMF).

Economists concur that global and regional factors are unlikely to moderate the economic growth of the UAE and the wider GCC — a trend in line with IMF projections of strong growth revival in Abu Dhabi and Dubai in 2018 and 2019.

Analysts had forecast an overall GDP growth of 2.5 to 3 per cent in 2018.

Abu Dhabi’s GDP, which saw a negative growth rate of minus 0.5 per cent in 2017, is expected to grow by 3.4 per cent this year, an improvement on the 2.7 per cent forecast for 2018.

Dubai, which grew at 2.8 per cent in 2017, is expected to deliver growth of 4 per cent this year, more than the 3.3 per cent growth forecast for 2018.

The latest IMF projections, however, were based on two main factors — the significant increase in oil prices and progress in the country’s fiscal adjustment programme — both on the revenue and expenditure sides.

However, given the changing dynamics of the global oil market — a function of not only supply and demand, but also geopolitical factors — economists see GDP growth in the range of 2.5 to 2.8 per cent this year, slightly higher than in 2018.

Many economists reduced their growth forecasts for the UAE in the wake of falling oil prices and a decline in crude output, the consequence of the decision by the Organisation of Petroleum Exporting Countries (Opec) to lower output by 800,000 barrels a day from what the group pumped last October.

In compliance with Opec’s quota, the UAE is expected to cut production this month by about 2.5 per cent from what it pumped in October.

‘Sustainable footing’

“This [oil output] should still be higher than the 2018 annual average, given the lower oil output in [the first half of 2018]. Thus, the oil sector should still see positive real growth in 2019 [which only takes into account output changes], albeit at a more moderate pace than our previous forecast,” said Monica Malik, chief economist of Abu Dhabi Commercial Bank.

“We now see real headline GDP growth of 2.7 per cent in 2019, moderately up from an estimated 2.5 per cent in 2018.”

The Institute of International Finance (IIF) sees the UAE’s overall GDP growth in 2019 at 2.9 per cent.

“The sizeable fiscal consolidation of the past three years should put the fiscal stance on a more sustainable footing over the medium term,” said Garbis Iradian, IIF chief economist for the Mena region.

“We see the fiscal balance shifting from a deficit of 1.8 per cent in 2017 to a surplus of 1.7 per cent in 2018 as higher oil revenues more than offset the significant increase in government spending.”

However, the oil output cut and lower prices this year, compared to 2018, are likely to impact private sector economic activity.

“[Low oil prices] may lower private sector confidence and lead to less expansionary fiscal policy,” Iradian said. “However, if oil prices remain above $60 per barrel in 2019, then the impact would be limited.”

In general, economists view the UAE as more diversified than other major GCC oil exporters, in addition to it having a well-managed economy and a business environment among the top 16 economies in the world, supported by excellent infrastructure and political stability.

“The resilience of the UAE banking system to lower oil prices has improved in recent years, thanks to the improvement in the supervision and regulation by the Central Bank of the UAE,” Iradian said.