Economic confidence in the UAE and other Middle East countries rebounded to its highest level since the second quarter of 2015 in sharp contrast to a decline in global confidence level in the same quarter this year, results of survey revealed on Wednesday.

The key factor behind the recovery in confidence in the UAE and the larger region from the second quarter of 2018 is the sharp rise in the oil price, which peaked at $80 per barrel in late-May, compared with a low of $35 per barrel at the start of 2016.

"This has resulted in an increase in revenues coupled with the introduction of VAT in the UAE and Saudi Arabia, which has led to an ease in fiscal austerity," said the Global Economic Conditions survey released by the Association of Chartered Certified Accountants (ACCA) and Institute of Management Accountants (IMA).

"The global economic recovery that started in late-2016 is starting to slow down and lose momentum, with global confidence in second quarter dipping from its first quarter high. Despite this, across the Middle East and in the UAE, confidence rebounded further in the second quarter of the year and is now at its highest level since second quarter 2015," the report said.

Analysts at the ACCA said that although it remains high by recent standards, the slight fall in confidence reflects increasing fears of a trade war between the US and China. "This continues to effect global outlook, with China's economic sentiment falling sharply."

Despite this, across the Middle East and in the UAE, confidence rebounded further in the second quarter of the year and is now at its highest level since the second quarter of 2015. Lindsay Degouve de Nuncques, head of ACCA Middle East, said the economic outlook across the Middle East and the UAE would continue to be driven mostly by the oil price and changes in fiscal policy.

"The recent Opec deal, which was agreed in late June and saw member countries agree to raise production, is likely to depress prices over the coming months, however with VAT being introduced across the GCC [with the UAE and Saudi Arabia live], it will relieve the pressure that was once felt prior to this fiscal policy being introduced, which will continue to provide economic relief and reduce further oil price dependency on economic growth," said de Nuncques.

"It's good to see the improvement in confidence across the Middle East region, and while oil prices are a key factor behind this, expenditure for the 2020 World Expo in Dubai has also helped, along with an easing of austerity, but this diverse region is not immune from global economic shocks and therefore it is advisable that businesses should not be complacent," said de Nuncques.

Hanadi Khalife, director of MEA and India operations at the IMA, said the results of the survey show increasing business confidence in the Middle East which has been stimulated by continued investments made across a number of key industries.

"This falls in line with the objectives set by governments to achieve long-term regional plans such as UAE Vision 2021 and Saudi Vision 2030. The report shows that government spending is at a multi-year high and this is particularly focused on diversifying regional economies and driving sustainable economic development."

Narayanan Vaidyanathan, head of business insights at the ACCA, said the net dip in global confidence levels reflects factors such as fears of US-China trade wars more than compensating for other factors such as low employment and tax cuts in the US. The dip was seen both in OECD and non-OECD countries, though confidence in both groups remains relatively high by historical standards.

According to the survey, the introduction of a value-added tax at the start of 2018 in the UAE has pushed up inflation, which will weigh on growth by depressing consumers' purchasing power. Higher interest rates in the US will also drag on prospects. Because the UAE's exchange rate is pegged to the US dollar, local interest rates closely track those in the US. The US Federal Reserve has raised rates twice this year already, and is likely to raise them by more over the coming quarters.

A recent study by the CFA Institute revealed that trust level among investors in the UAE's financial services sector is higher than their counterparts globally. The study finds that investors in the UAE are confident, with 47 per cent claiming they are very confident in their investment decision-making, compared with just 33 per cent of investors globally.

 

Copyright © 2018 Khaleej Times. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

Disclaimer: The content of this article is syndicated or provided to this website from an external third party provider. We are not responsible for, and do not control, such external websites, entities, applications or media publishers. The body of the text is provided on an “as is” and “as available” basis and has not been edited in any way. Neither we nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this article. Read our full disclaimer policy here.