Monday, Jul 04, 2016

Dubai: The UAE is expected to face further moderation in real GDP growth this year as the economy already impacted by lower oil prices and fiscal consolidation is likely to be further impacted by external headwinds, according to a report from Abu Dhabi Commercial Bank (ADCB).

“We marginally lower our real non-oil GDP growth forecast for UAE to 2.3 per cent for 2016 from our previous estimate of 2.5 per cent. This is on the back of rising external headwinds in the second half 2016 following the Brexit vote and the subsequent sharp fall in the GBP and weaker UK GDP growth outlook,” said Monica Malik, Chief Economist of ADCB.

A sharp decline in GBP is expected to impact key non-oil sectors such as tourism and real estate. There are also signs of greater job losses in the UAE, especially in second quarter of 2016, although substantially lower than the levels seen in 2008-09.

Indicators and activity on the ground point to a further softening of non-oil activity in the first half of 2016 from the 2015 level. The sharply lower oil price in the first quarter severely impacted both government and private (individual and corporate) sentiment. A structurally weaker medium-term oil price outlook is resulting in continued restraint, though the rise in the oil price in the second quarter is seen as a relief.

Analysts expect the overall non-oil economic activity to be constrained by factors such as weaker external demand; continued fiscal consolidation in Abu Dhabi; and corporate adjustments to the weaker demand environment. Tightening fiscal policy in the wider GCC (particularly Saudi Arabia) and lacklustre global demand are already visible on the external front.

“There are, however, some key support factors for growth, including a stronger expansionary stance from Dubai, which has been reflected in a notable pickup in Dubai project awards year to date,” said Malik.

With expected improvements in oil prices, growth is projected to pick up over the medium-term, also supported by increased investment ahead of the World Expo 2020 hosted in Dubai, and more favourable external conditions.

“We remain positive about the UAE’s medium-term outlook, despite economic activity slowing to below-trend levels. The UAE would see the greatest benefit (compared to other GCC countries) from a strengthening in global growth, even if oil prices remain structurally lower, given the more diversified nature of its economy and broad catchment base,” said Shailesh Jha, economist at ADCB.

By Babu Das Augustine Banking Editor

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