Central Bank governor forecasts solid growth for next year
Growth and liquidity in place with no material impact from restrictions on Iran, governor says
The UAE’s economy is in good shape and will expand 4.2 per cent next year as the government continues to implement reforms and shield the country from any fallout from US sanctions on Iran, the central bank governor said yesterday.
The economy, which grew 0.8 per cent last year, will accelerate to 2.8 per cent this year, thanks to non-oil GDP growth of 3.3 per cent as well as a recovery in oil prices, Mubarak Al Mansoori said.
“Things are starting to materialise and growth is there and liquidity is there,” he told an Institute of International Finance conference in Abu Dhabi.
He was more bullish than the International Monetary Fund, which is projecting 2.9 per cent growth for this year and 3.7 per cent in 2019.
The UAE, the Arab world’s second-largest economy, is steaming ahead thanks to a series of reforms introduced this year. These measures include the announcement of a threeyear Dh50 billion economic stimulus programme for Abu Dhabi, a foreign investment law and a debt law.
The government also introduced VAT in January at 5 per cent, a measure that increased inflation but is expected to moderate to 3.6 per cent by the end of this year, the governor said.
Meanwhile, the re-imposition of US economic sanctions on Iran, which used to be a major trade partner with Dubai, is not going to have “any material impact” on the economy because UAE banks are not dealing with Tehran.
The UAE has two Iranian banks and “they have been minimised in terms of their activity”, Mr Al Mansoori said. “They cater mainly for Iranian nationals living in the UAE” who have difficulty opening accounts with other banks.
The UAE economy will expand 4.2 per cent next year, faster than the International Monetary Fund’s estimate, as the country continues with reforms and sustains no material impact from restrictions on Iran, the Central Bank Governor said yesterday.
The economy is forecast to grow 2.8 per cent for this year, with 3.3 per cent growth in non-oil GDP, which currently accounts for about 77 per cent of the economy, Mubarak Al Mansoori said at the Institute of International Finance conference in Abu Dhabi.
The IMF projects the economy will grow 2.9 per cent this year and 3.7 per cent in 2019.
“Things are starting to materialise and growth is there and liquidity is there,” Mr Al Mansoori said. “A lot of government initiatives have been announced and we are in good shape.”
Said Jason Tuvey, an economist with Capital Economics: “A couple of factors will drive stronger growth over the next 12 months, including rising oil output, fiscal stimulus and a step-up in preparations for the 2020 World Expo.”
Inflation, which had peaked in January this year with the introduction of 5 per cent VAT, is set to moderate to 3.6 per cent by the end of the year, Mr Al Mansoori added.
The UAE is carrying out reforms to boost growth. In June, Abu Dhabi announced a threeyear Dh50 billion stimulus programme. Dubai and Abu Dhabi have also waived corporate fines.
The Emirates announced regulations including a new foreign direct investment law and a debt law, which will help to attract capital and increase the liquidity of financial markets.
The UAE does not expect renewed US sanctions on Iran, which came into force on Monday, to hurt its economy despite strong commercial ties with Dubai. “Ever since they [partners in the 2015 Iran nuclear deal] lifted the sanctions, the banks did not go back as normal due to having to keep their relationships with clearing banks in the US,” Mr Al Mansoori said.
The UAE currently has two Iranian banks and “they have been minimised in terms of their activity,” he added.
“They are only catering for Iranian nationals living in the UAE mainly,” who have had difficulty in opening accounts with other banks.
The UAE banking sector is liquid and strong, with credit growth to the private sector increasing 6.5 per cent in the first nine months of the year, the governor said.
Islamic banking is growing at a rate of 9 per cent annually and accounts for about 20 per cent of the banking sector’s total assets.
“The banking sector is in a very good position to excel and support economic growth,” he said.
The sector has not been affected by the drop in real estate prices and banks continue to offer credit.
“The property market is in a good position more than before and [bank] lending continues,” the governor said.
The governor said there would be additional consolidation in the banking industry as the region has “super big banks”. Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank are in talks to merge and that tie-up could end up being two banks, he added.
The banking sector continues to attract inflows in the form of non-resident deposits, which rose to a two-year high of Dh205.4 billion at the end of September and accounted for 11.8 per cent of total deposits in the UAE.
The governor also emphasised that the bank will maintain its peg to the dollar despite the faster rate increases in the US, which the UAE and other GCC states mimic.
“We have a stable currency for trade and investment and this gives a lot of stability and confidence,” Mr Al Mansoori said.
Things are starting to materialise ... growth is and liquidity are there. There have been a lot of goverment initiatives MUBARAK AL MANSOORI UAE Central Bank Governor