Dubai: Standard Chartered has raised its growth estimates for 2017 in the UAE even as it remains less optimistic on the depth and scale of recovery for the remainder of the year.
Standard Chartered raised its 2016 growth estimate to 2.6 per cent from the prior estimate of 2.4 per cent. Growth in oil GDP is expected to be 2.7 per cent and 2.6 per cent growth in non-oil GDP.
“Despite non-oil activity [as measured by the UAE PMI] signalling stronger output momentum in the first two months of the year, we are now less optimistic than previously about the scale and depth of the recovery over the next nine months,” Dima Jardaneh, executive director, head of Mena economic research said. The bank does not expect a strong pickup in non-oil activity in 2017.
Fiscal balances should narrow in the UAE, and support the liquidity conditions, she said.
“We also expect current account to remain in surplus, and this is supported by global economic environment and global demand,” she told journalists at a press conference.
US focus
Right now, US policy poses a particular risk to the outlook. Although markets are excited about the prospect of President Trump’s reflationary policies, it is still unclear as to whether they will materialise, according to Standard Chartered.
The focus should be more on Federal Reserve than the US president Donald Trump, and Standard Chartered expect a slowdown in the US in 2019 due to tighter monetary policy.
“We will see two more interest rate hikes this year, and two more next year. We are seeing a proper tightening cycle. The risk is that they might do more than less. Eventually this will begin to slow down economic activity,” said Marios Maratheftis, global chief economist at Standard Chartered.
US protectionism
Standard Chartered does not anticipate a trade war as global supply chains will make US protectionism very difficult, along with the World Trade Organisation membership.
“We are not convinced at all that we will see a boom in infrstracuture spending in the United States,” said Maratheftis said, adding funding infrastructure would require the US government to hike taxes, which is something that would go against the core belief of the Republicans.
However, he added Asia and China would drive the global growth despite less contribution from the US or the EU.
“Despite elevated levels of event risk, the world economy has started 2017 well. Animal spirits are back. We think the world economy still has room to run over the next few quarters but strong confidence alone will not be enough to sustain this,” Maratheftis said.
