Growth forecast for the UAE and most of the Gulf economies has been revised down for 2019 and 2020 due to cuts in oil production. The growth for the wider Mena region is projected to remain subdued.
According to the World Bank's latest report, the UAE's growth was cut by 0.4 per cent and 0.2 per cent to 2.6 per cent for 2019 and 3 per cent for the next year, respectively, from its January 2019 forecast. While growth rate for 2021 was maintained at 3.2 per cent.
FocusEconomics expects the UAE's GDP to grow 2.6 per cent in 2019 and 3.1 per cent in 2020.
"Growth should ramp up this year, supported by a large fiscal stimulus focused on infrastructure investment for Expo 2020, as well as by a swathe of business-friendly reforms to attract foreign investment. Nevertheless, the evolution of Opec+ output decisions will be key to the outlook, while lower global growth and a fragile real estate sector pose additional risks," FocusEconomics said in the note.
The World Bank noted that the UAE's reform of financing liberalisation for the small and medium enterprises will help relieve constraints in the corporate sector and support investor confidence.
Shan Saeed, chief economist, IQI Global, is cautiously optimistic about the growth outlook of the UAE and Gulf region.
"GDP growth should meander around 2.5 to 3 per cent in the coming 12-18 months. The economy will have structured growth taking into account the global headwinds. Recently, the UAE has made a strategic move and become an important player in the Belt and Road equation. This would bolster the relevance and significance of the UAE as a major hub of economic and infrastructure development," said Saeed.
He pointed out that the UAE continues to be on the global investors' radar due to business-friendly policies of the government, connectivity to three continents in less than 7 hours and above all highly-skilled labour force talent readily accessible.
The factors that would contribute significantly to the overall GDP growth are massive FDI inflow, modern infrastructure, higher energy prices, liberal visa policies and an important player in the Belt and Road equation, he added.
The World Bank in its Global Economic Prospects 2019 report said that an improved regulatory and business environment in the GCC would remain supportive of private sector activity.
The overall GCC growth forecast for 2019 was slashed by half a per cent to 2.1 per cent for 2019 but revised upward for the next year by half a per cent again to 3.2 per cent. While 2021 forecast remains unchanged at 2.7 per cent for the region.
"Growth in the Middle East and North Africa is projected to remain subdued in 2019, at 1.3 per cent. Activity in oil exporters has slowed due to weak oil sector output and the effects of intensified US sanctions on Iran, despite an easing of fiscal stance and positive prospects in non-oil sectors in some countries. Many oil importers continue to benefit from business climate reforms and resilient tourism activity. Regional growth is projected to pick up to around three percent a year in 2020-21, supported by capital investment and policy reforms," said Lei Sandy Ye, economist, Word Bank.
He warned that risks to the outlook are tilted to the downside for Mena region, including geopolitical tensions, reform setbacks, and a further escalation of global trade tensions.
However, GCC growth in non-oil sector is picking up amidst easier fiscal stances and higher government spending.
FocusEconomics said growth prospects for the Middle East and North Africa are deteriorating on the back of elevated geopolitical risks, weak global demand and severe oil production cuts. Moreover, escalating trade tensions between China and the US threaten to hit global economic growth, which could, in turn, reduce demand for the black gold.
The Mena economy is projected to expand 1.6 per cent in 2019, down 0.2 percentage points from last month's forecast. For 2020, the Mena economy is projected to expand 2.8 per cent, said FocusEconomics.
According to World Bank report, growth in oil importers is expected to rise steadily from 3.9 per cent in 2018 to 4.7 per cent in 2021, led by expansions in the larger economies. These projections are predicated on business climate reforms to support investment, healthy tourism activity, and a slight easing in political risks.
Growth prospects in smaller oil importers such as Jordan, Lebanon, West Bank and Gaza are highly uncertain, however, as business and consumer confidence are contingent on anticipated reforms or foreign financial assistance.
World Bank report noted that inflation is contained in most of the Mena region, with rates averaging less than three per cent in the past year in the GCC countries and falling recently to about 3 percent in the smaller oil importers. Policy interest rates in these economies have mostly remained neutral.
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