UAE central bank cuts growth forecast to 2.3%

dubai — The UAE’s real gross domestic product (GDP) is poised to grow at 2.3 per cent in 2018, underpinned by an estimated 3.6 per cent year-on-year growth in the non-oil sector in the second quarter, the country’s central bank said in its latest projection on Wednesday.

“Non-oil sector growth remained resilient in the second quarter of 2018 against the backdrop of firming up of oil prices, supporting fiscal policy and resilient tourism and related activities,” the central bank said in its quarterly review.

The latest real GDP growth forecast is slightly lower than the earlier central bank projection of 2.7 per cent.

According to the review, consumer price index inflation slowed down after the pronounced increase in the first quarter, following the implementation of value added tax, or VAT, with the increase driven mainly by the prices of tradables.

“This is in contrast to a moderate inflation of non-tradables, owing to a continued reduction in housing prices,” the central bank said.

Job creation in the UAE increased at a slower pace as a result of the moderation in oil production and slowdown in some nonoil activities, the bank said.

In compliance with the Opec output cut agreement, the UAE’s oil production shrank 1.7 per cent year on year in the second quarter.

The central bank now expects the non-oil economy to grow 3.6 per cent in the whole of 2018 while oil GDP shrinks 0.5 per cent.

A series of stimulus and structural reform measures initiated in the UAE by the federal government and individual emirates over the past few months will help accelerate economic growth by boosting non-oil real GDP growth by one per cent in 2019, according to analysts at Bank of America Merrill Lynch.

The central bank’s report said the banking sector showed a continued growth in deposits, mainly boosted by the increase in government deposits, in tandem with sufficient liquidity and resilient non-oil activity.

“This allowed banks to extend credit, particularly to the private sector,” the central bank said.

The central bank’s balance sheet recorded a drop in the second quarter as evident by a decrease in cash and bank balances as well as the decrease in deposits at banks abroad and other advances, the report said.

The decline on the liabilities side was mostly the result of a decrease in current accounts and deposits of banks at the central bank. “The balance of certificates of deposits issued by CBUAE and purchased by banks remains high, indicating sufficient liquidity.”