Tuesday, Jul 25, 2017

Dubai: The UAE economy is benefiting more from the rebound in world trade flows and growth in global tourism than other GCC economies, according ‘The ICAEW Economic Insight’ a report produced by Oxford Economics, ICAEW’s partner and economic forecaster.

According to ICAEW the UAE has a more favourable economic outlook because it is the most diversified economy in the GCC. Fuel generates just 22 per cent of the country’s export revenues.

UAE’s GDP growth is projected to reach 1.7 per cent in 2017. Although the growth rate is almost half as fast as in 2016, it is represented by a greater contribution from the non-oil sector, which means GDP growth could accelerate to 3.3 per cent in 2018.

The UAE’s infrastructure investments have helped unlock this growth potential. Dubai International Airport is ranked the world’s third-busiest airport and DP World is the ninth-busiest container port globally.

Passenger traffic through Dubai International Airport increased 7.4 per cent in the first quarter of the year, and this improvement is mirrored in the wider non-oil sector. Several key infrastructure projects are forging ahead, partly in support of Expo 2020. Overall, the number of construction projects awarded in first quarter of 2017 was up 26 per cent compared to the corresponding period of 2016.

The stabilisation in oil prices, the easing pace of austerity, and sovereign debt issuance have all helped ease liquidity pressures in the banking system over the course of the past year or so. Privately-held bank deposits were up by almost 9 per cent in the year to March, enabling lending to grow by 7 per cent over the same period.

“The UAE is in a stronger position than other countries in the region due to its diversified economy, excellent infrastructure, political stability and ample foreign assets. Its reputation as a trade hub has helped the country to benefit from the rebound in the world economy more immediately than other economies in the GCC,” said Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia (MEASA).

Despite the improving economic conditions, UAE consumers are expected to feel several drags on their spending power in the coming year or two. The introduction of value added tax (VAT) is expected to add 2 percentage points to inflation in 2018, pushing inflation to 4 per cent overall. Further pressure will be felt by consumers as a result of recent government legislation to enable excise duties on soft drinks and tobacco of up to 100 per cent of the product value. Additionally, new regulations requiring all expats and dependents to hold health insurance in order to renew visas, will take a further chunk out of households’ spending power.

By Babu Das Augustine Banking Editor

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