UAE - The overall direct exposure of the UAE and other GCC countries to the Turkish crisis is limited. UAE exports to Turkey accounted for just 1.4 per cent of 2017 nominal GDP, analysts said.
Monica Malik, chief economist, Abu Dhabi Commercial Bank, said GCC countries' overall direct exposure to Turkey is relatively contained. However, Turkey is a key destination for UAE non-oil exports as the Emirates was the 13th largest source of imports into Turkey last year.
"UAE data indicate that Turkey was the second-largest destination for the UAE's non-oil exports in 2017 in value terms, accounting for nine per cent. The main exports from the UAE to Turkey are precious metals and stones, accounting for 90 per cent of non-oil exports in 2017, and to a much lesser degree aluminium and plastics. Thus, the crisis in Turkey will likely have a focussed impact in the precious metals sector, with some negative effect on the UAE's non-oil export performance in 2018," Malik said in a note on Tuesday.
However, Malik stressed that the concentration of exports in this sector should limit the impact on the UAE's overall GDP and total exports, including oil. Taking into account UAE non-oil exports combined with re-exports, Turkey comprised a more moderate 3.6 per cent share in 2017.
Moreover, Turkey is not a main source of tourism for the UAE and Turkish nationals were not among the top 10 buyers of properties in Dubai.
Turkey's currency and political crises are worsening, severely hitting its currency over the last few days. On Tuesday, Turkish President Tayyip Erdogan announced boycott of US electronics products after US President Donald Trump announced hike in tariffs on Turkish steel imports.
"We expect that Turkey will have to introduce deep fiscal and monetary tightening to stabilise the lira, which in turn will dampen economic activity further," Malik added.
Malik said in the note that the UAE will see the greatest impact if emerging market currencies remain under downward pressure, impacting external non-oil competitiveness given its more diversified economy.
"India, China and Russia are key source markets for the UAE's non-oil sectors - tourism, hospitality, real estate, etc. - alongside Europe, which is also seeing a weakening in currencies for various reasons. We do not believe that recent developments will result in a downward adjustment of UAE real non-oil GDP growth forecast at this point, though they will contribute to keeping external demand soft. The strengthening of the US dollar has already impacted key service sectors, while Jebel Ali throughput volumes have been relatively flat in H1 2018," she added.
The GCC's stable currency outlook is positive for capital and portfolio flows into the region. This stability will also be important in keeping imported inflation low, particularly with the introduction of VAT in Saudi Arabia and the UAE this year, Malik added.
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