Fore­cast cut for growth on oil out­put re­straint

But non-oil sec­tors set for a re­bound, says Emi­rates NBD

The National - News - Business - - Front Page - Mah­moud Kassem mkassem@thena­tional.ae

Emi­rates NBD, Dubai’s largest lender by as­sets, low­ered its fore­cast for eco­nomic growth in the UAE this year to 2 per cent from 3.4 per cent.

It pointed to the ex­pected im­pact on growth from the ex­ten­sion of an oil out­put re­straint deal agreed by Opec and a group of coun­tries led by Rus­sia.

Khatija Haque, the head of Mid­dle East and North Africa re­search at Emi­rates NBD, said in a re­port that the de­ci­sion in May to ex­tend pro­duc­tion curbs un­til March 2018 to shore up crude prices has led the bank to re­vise down its 2017 real GDP growth fore­cast for the UAE.

“Our ex­pec­ta­tion for a re­bound in the non-oil sec­tors this year re­mains un­changed,” she said.

While there has been pes­simism sur­round­ing oil prices of late af­ter crude en­tered a bear mar­ket amid an in­crease of sup­ply glob­ally, there is op­ti­mism about the non-oil econ­omy of the UAE due to a rise in global trade as well as in­vest­ment into in­fra­struc­ture ahead of Dubai’s host­ing of Expo2020.

As a re­sult, the non-oil econ­omy will re­bound this year, the IMF said in May.

Non-oil GDP is fore­cast to ex­pand by 3.3 per cent this year with the bud­get deficit shrink­ing to 4.5 per cent of GDP, it said.

The IMF in April low­ered its over­all fore­cast of growth for the re­gion, on the as­sump­tion that the oil out­put deal would trim pro­duc­tion of re­gional crude. The IMF ex­pects real GDP growth for the seven oil-ex­port­ing coun­tries in the Mid­dle East of 1.9 per cent this year, which is a full per­cent­age point lower than the 2.9 per cent growth it fore­cast for the group in Oc­to­ber.

Although fis­cal deficits in the re­gion are nar­row­ing as gov­ern­ments trim spend­ing and in­tro­duce new rev­enue streams such as value-added tax, there are dim prospects for dou­ble-digit sur­pluses.

In re­sponse to the eco­nomic slow­down, gov­ern­ments and com­pa­nies have cut back on spend­ing on projects and slowed hir­ing. Con­sumers be­came cau­tious about spend­ing money, fur­ther damp­en­ing growth. How­ever, busi­ness con­fi­dence in the emi­rates has im­proved.

That’s made many ob­servers op­ti­mistic about a re­bound in eco­nomic growth in 2018. The Egyp­tian in­vest­ment bank EFG-Her­mes said in May that it ex­pects the UAE’s GDP growth next year to 3 per cent on the back of im­prove­ment in the non-oil econ­omy. For this year how­ever, the in­vest­ment bank ex­pects eco­nomic growth to slip to 1.1 per cent. The UAE’s econ­omy grew 3 per cent in 2016, down from 3.8 per cent the pre­vi­ous year, in the wake of a lull in non-oil eco­nomic growth, ac­cord­ing to the Fed­eral Com­pet­i­tive­ness and Sta­tis­tics Author­ity. That slow­down was in line with the ex­pec­ta­tions of econ­o­mists, many of whom see a fur­ther slow­down this year, amid lack­lus­tre oil prices and an ex­ten­sion of the pro­duc­tion cuts.

The IMF in April low­ered its fore­cast for the re­gion’s growth

Pawan Singh / The Na­tional

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