Dubai skyline
Dubai’s economy is expected to record 2.1 per cent and 2.3 per cent respectively in 2019 and 2020. Image Credit: Reuters

Dubai: The UAE economy is expected to stage a modest recovery in 2019 and keep up the momentum through 2020, according to the latest forecast by the Institute of International Finance (IIF).

“We expect non-hydrocarbon real GDP growth to pick up to 1.7 per cent in 2019 and 2.2 per cent in 2020, supported by Abu Dhabi’s three-year stimulus package and Dubai’s spending linked to Expo 2020,” said Garbis Iradian, chief economists, Middle East and North Africa (Mena) of the IIF.

In its latest World Economic Outlook, the International Monetary Fund (IMF) has forecast the UAE’s GDP growth at 1.6 per cent and 2.5 per cent for 2019 and 2020, respectively.

According to the IIF forecasts Abu Dhabi’s real GDP would grow 2.3 per cent and 2 per cent respectively in 2019 and 2020 while Dubai’s economy is expected to record 2.1 per cent and 2.3 per cent growth respectively in the same period, largely driven by non-oil growth.

Optimistic outlook

The IIF is optimistic on the modest but sustained recovery of the economy supported by strengthening credit growth and improvement in the banking sector liquidity. However, the IIF warns that the GDP growth could slow beyond 2020 below 2 per cent as the impact of Abu Dhabi stimulus and Expo 2020 fades.

“The downside risks to the outlook include lower oil prices, and slower global growth, which weighs on transport, logistics, tourism, and foreign investment. The continued decline in housing costs has been a major drag on inflation, and we expect the consumer price inflation to decline by 1.3 per cent in annual average terms in 2019,” said Iradian.

Real estate prices have been falling since late 2014, mainly due to oversupply and weaker consumer sentiment in the context of prolonged low oil prices. Additionally, foreign buyers have been discouraged by the sharp effective appreciation of the dirham in recent years and escalation of geopolitical tensions.

Ample fiscal space

Although the UAE is expected to have modest fiscal deficits this year and the next, the current accounts are forecast to remain in positive territory.

“The UAE can afford a modestly expansionary fiscal stance in the next few years given its large financial buffers and spare capacity. The current account surplus, while narrowing, will remain sizeable,” said Iradian.

The UAE remains the main regional destination of FDI inflows, attracting about $11 billion (Dh40.3 billion) in 2018 (2.9 per cent of GDP). The authorities are seeking even higher FDI inflows, setting a target of 5 per cent of GDP for 2021.

The IIF expects gross public foreign assets (official reserves plus SWFs) of the UAE to increase to $908 billion in 2019 (210 per cent of GDP). Corporate issuance to refinance existing loans and bonds that mature in 2019 and 2020 will remain sizeable. The IIF estimates maturing loans of Dubai’s government-related-entities’ (GRE’s) in 2021 at $23 billion, to be restructured again.

The IIF observed that the UAE authorities have set clear goals for encouraging diversified and knowledge-based growth and are implementing a broad range of policies to achieve their goals. It said privatising non-strategic GREs and enforcing competition laws and regulations on all entities would improve efficiency and raise productivity.