The office of the Central Bank of the UAE in Sharjah at Abu Shagara area.
The office of the Central Bank of the UAE at Abu Shagara area in Sharjah. Image Credit: Ahmed Ramzan/Gulf News

The UAE’s economy continues to demonstrate its resilience, amid global and regional challenges emanating from trade disputes, geopolitics and volatile oil prices.

The latest gross domestic product (GDP) projections by the Central Bank of UAE point to the strong fundamentals of the economy. The forecast has pegged the real GDP growth for 2019 at 2.3 per cent compared to the mid-year estimate of 2 per cent for 2019 and 1.8 per cent growth reported last year.

The latest Regional Economic Outlook and the Article IV Consultation Paper of the International Monetary Fund (IMF) has forecast GDP growth of around 2 per cent in 2019 and 3 per cent in 2020 while the Institute of International Finance (IIF) has slightly more conservative GDP growth outlook of 1.7 per cent for the current year and 2.2 per cent for 2020.

Despite the slight differences in forecasts, the median average of forecasts by domestic and international institutions indicates a growth of more than 2 per cent during the current year and 2.5 per cent in the next year.

The central bank attributed the improved growth outlook for 2019 to rising public and private spending at the federal and emirate levels, higher investment ahead of Expo 2020 Dubai and continued regional economic recovery.

What makes the UAE’s growth story unique is its resilience supported by an ample fiscal cushion and current account surplus.

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The sustained recovery is supported by strengthening credit growth and improvement in banking sector liquidity.

The downside risks 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 while key sectors such as real estate, wholesale and retail, and travel and tourism are facing challenges due to the sharp effective appreciation of the dirham (due to its peg to the dollar) in recent years and escalation of geopolitical tensions.

What makes the UAE’s growth story unique is its resilience supported by an ample fiscal cushion and current account surplus.

The UAE can afford a modestly expansionary fiscal stance in the next few years given its large financial buffers. The current account surplus, while narrowing, is expected to be sizeable in next few years supported by oil exports, rising foreign direct investments (FDI) and substantial gross public foreign assets (official reserves plus Sovereign Wealth Funds).

While the positive growth outlook points to the continuing improvement in the economic conditions, the broad consensus in the forecast numbers supports the credibility of official statistics which will undoubtedly boost business confidence.