Dubai: Subdued employment conditions have put a damper on the optimism of businesses in the UAE, with the latest confidence index registering a decline, according to a new survey by accountants.

However, conditions are forecast to improve this year as the UAE has the ability to quickly adjust to low oil revenues and overcome economic challenges.

“Austerity is expected to ease in 2017," said Lindsay Degouve de Nuncques, head of ACCA Middle East. "The prospect of the 2020 World Expo and Iran’s improving relationship with global trade offer encouragement for future investment. Yet, while growth is set to improve this year, confidence has fallen slightly as the region’s performance impacts on prospects,” said Nuncques.  

Business confidence in the country dropped to negative 23.7 in the last quarter of 2016, compared to 41.8 in the first quarter of 2014, the Global Economic Conditions Survey by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA) showed. The survey was based on the responses from more than 4,500 finance professionals and business leaders worldwide.

The slump in sentiment has been due mainly to tightening employment conditions in the country.

“Business confidence has dropped due to the fall in employment confidence, which include job cuts and/or freezing recruitment,”Faye Chua, head of business insights at Acca, told Gulf News

“It is expected that on the whole, growth in the UAE should improve in 2017, whether it is mid or latter in the year, it is difficult to say as the global economy is  operating in an age of uncertainty.”

ACCA's report noted that the country's government expenditure index has been rising to its highest level since the third quarter of 2015. "Although the economy has been hit hard by the decline in the oil price, the economy has managed the adjustment to lower oil prices faster than other countries in the region."

Any recovery, however, is likely to be gradual, according to the accountants, adding that the country's dollar-pegged interest rates will need to rise in line with those of the United States. "In addition, tourism will struggle against the backdrop of higher exchange rates and weak growth in the rest of the region. Growth in UAE should improve in 2017 after a difficult year in 2016."

Across the Middle East, business confidence also dropped, as the region continued to face pressure from weak oil prices and lower government spending.

Globally, business confidence fell as well due to ongoing political and economic uncertainty. ACCA noted that government investments across the world have been falling since the start of 2016, with many developed markets still firmly in austerity mode.

There have also been changes in the political landscape stemming from the recent US election, as well as uncertainty over US and China trade developments.

Almost half (44 per cent) of respondents surveyed by ACCA expressed concern over falling incomes due to low levels of government expenditure, with another 43 per cent reporting worsening business confidence.

“The fall in oil prices continues to hit the Middle East hard, creating sharp declines in export and fiscal revenues. This has caused many governments to cut back heavily on key spending projects,” said de Nuncques.

“This is particularly noticeable in Saudi Arabia, where the weakness of the government spending index has been the main driver of falling confidence. With the need to stabilise finances, as well as raising interest rates to keep up with the US Fed’s tight monetary policy is placing considerable pressure on statement investment.”