The United Arab Emirates’ (UAE) real non-oil GDP is expected to grow by 4 per cent in both the current year and in 2014, according to a report.
The overall macro economy has been helped by solid performances in the trade, tourism, and business services sectors, which have benefitted from the UAE’s ‘safe haven’ status in the Mena region and the country’s strong trade ties with emerging markets in Asia, the NBK report said.
Local equity markets have seen a major rally in 2013 and survey evidence shows the non-oil private sector growing steadily.
Debt and restructuring issues – legacies from the financial crisis – at banks and government related entities continue to cast a shadow over the economy’s prospects. But even there, signs of improvement are starting to show, it said.
The UAE’s crude oil output is expected to edge lower over the next two years, as Opec looks to maintain oil prices at around $100 per barrel in light of soft demand and increased non-Opec/Iraqi supplies. However, since the UAE’s oil output grew less than that of some other Opec members in the past, future cuts may also be more modest.
With real growth in the oil sector being flat-to-down, overall real GDP is expected to grow by just 2.7 per cent in 2013, and 2.0 per cent in 2014 — though this will mask steady improvements in non-oil pillars of the economy.
The real estate sector in Dubai appears to have turned a corner, with major new development projects reporting high levels of buyer/investor interest. But an oversupply of residential property means the recovery has further to go; transaction volumes and prices remain dwarfed by their pre-crisis peaks. A gradual improvement in market conditions could translate into firmer rents, which in turn could put some upward pressure on the CPI, the report said.
However, given the low starting point for inflation (0.7% y/y in 1Q13), moderate economic growth, subdued global food prices, and low inflation elsewhere in the region, overall price pressures look likely to remain very modest, it said.
The report forecast an average inflation rate of 1.0 per cent in 2013, rising slightly to 2.0 per cent in 2014.
Consolidated government spending may have fallen 5 per cent in 2012 (following a 19 per cent rise in 2011), driven by a reduction in government bailout spending. Despite a planned $90 billion investment spending by the Abu Dhabi government between 2013 and 2017, aggregate government spending growth may turn out to be muted over the next couple of years, with projects implemented at a measured pace and the cash-strapped Dubai government continuing to consolidate. This will help the budget remain in surplus at around 2-4 per cent of GDP (once investment income and oil profits are included), despite a dip in oil revenues, the report said.
It said the external position looks more robust. The current account surplus stood at a modern day record of 17 per cent of GDP in 2012, thanks mainly to buoyant oil revenues and strong growth in non-oil exports (which are now worth nearly double hydrocarbon exports). Falling oil revenues and solid growth in goods imports (which have risen nearly 50 per cent since 2009) may lower the surplus slightly in 2013 and 2014.