UAE econ­omy in ‘soft land­ing’

Over time, we ex­pect greater mar­ket dif­fer­en­ti­a­tion for abu dhabi ver­sus other GCC cred­its as its high­grade high-qual­ity value is ce­mented Jean Michel-Sal­iba, Economist at Bank of Amer­ica Mer­rill Lynch

Khaleej Times - - BUSINESS - Is­sac John

dubai — Af­ter weath­er­ing the tur­bu­lence caused by low oil prices, the UAE has man­aged a soft land­ing with non-oil real gross do­mes­tic prod­uct growth bot­tom­ing out as the fis­cal drag eased and in­fra­struc­ture ac­tiv­ity picked up, an­a­lysts at Bank of Amer­ica Mer­rill Lynch said.

“We ex­pect over­all UAE real GDP growth of 0.9 per cent in 2017, from 2.2 per cent likely in 2016. The head­line fig­ure masks a likely con­trac­tion in the oil sec­tor due to the Opec deal, but we see non-hy­dro­car­bon real GDP growth pick­ing up to 2.7 per cent in 2017 from 2.3 per cent in 2016,” said Jean Michel-Sal­iba, economist at Bank of Amer­ica Mer­rill Lynch.

Over the medium-term, BofAML ex­pects UAE non-oil growth to in­crease to three to 3.5 per cent on the back of greater Expo 2020 projects. Af­ter av­er­ag­ing 10 per cent an­nual growth from 2000-10 and a slump in 2009, Dubai real GDP growth was 4.1 per cent in 2015, slow­ing to 2.5 per cent in first three quar­ters of 2016, BofAML said in its Macro Monthly re­port.

The Wash­ing­ton-based In­sti­tute of In­ter­na­tional Fi­nance (IIF) ex­pects the UAE’s non-oil ac­tiv­ity to pick up mod­estly in 2017 as fis­cal drag eases and con­sump­tion spend­ing rises in the sec­ond half of 2017, ahead of the in­tro­duc­tion of value-added tax in 2018.

Gar­bis Ira­dian, chief economist, for Africa and the Mid­dle East at the IIF, said af­ter a chal­leng­ing year, “we ex­pect the drag from fis­cal con­sol­i­da­tion to ease and non­hy­dro­car­bon growth to pick up slightly to 2.9 per cent, from 2.3 per cent in 2016”.

The BofAML re­port noted that the sup­port­ive ex­ter­nal fi­nanc­ing back­drop and im­proved do­mes­tic liq­uid­ity sup­port re­fi­nanc­ing of Dubai govern­ment-re­lated en­ti­ties. Ag­gre­gate Dubai pub­lic sec­tor debt ap­pears to have sta­bilised in nom­i­nal terms, al­though it re­mains at el­e­vated lev­els, said the re­port.

“Over time, we ex­pect greater mar­ket dif­fer­en­ti­a­tion for Abu Dhabi ver­sus other GCC cred­its as its high-grade high-qual­ity value is ce­mented. Scarcity value, the abil­ity to post bud­get sur­pluses at $50/ bbl and the lack of ex­ter­nal is­suance go­ing for­ward should sup­port and tighten spreads, es­pe­cially ver­sus GCC peers such as Qatar,” said Michel-Sal­iba. Ac­cord­ing to BofAML, the Dubai govern­ment is likely to record a small bud­get sur­plus in 2016. “Still, we ex­pect the fis­cal bal­ance to shift to mod­est deficits [one to two per cent GDP] from 2017 on­wards as capex as­so­ci­ated with the new air­port, new Metro lines and Expo 2020 come on line.”

The re­port ob­served that Dubai’s 2017 bud­get projects a deficit of $0.6 billion (0.6 per cent of GDP) but “we think the pre­sen­ta­tion ex­cludes in­ter­est pay­ments on the Emi­rates NBD loan. We thus ex­pect ex­ter­nal debt is­suance to pick up con­se­quently”. Growth re­mains broad based al­though the con­struc­tion sec­tor is the lag­gard. The fastest grow­ing sec­tors are restau­rants and ho­tels, elec­tric­ity, gas and wa­ter, trans­port and real es­tate.

The key sec­tors in real GDP are whole and re­tail trade (30 per cent of real GDP), real es­tate and con­struc­tion (a com­bined 22 per cent), trans­port and com­mu­ni­ca­tion (15 per cent), fi­nance (12 per cent) and man­u­fac­tur­ing (12 per cent), the re­port noted.

“In Abu Dhabi, fis­cal con­sol­i­da­tion has slowed down non-oil real GDP growth ma­te­ri­ally, but we ex­pect the drag to fade. Real GDP grew by 2.8 per cent in 2016, from five per cent in 2015. Non-oil real GDP growth slowed to just 2.8 per cent in 2016, from 8.6 per cent in 2014,” it said.

Over the next five years to 2022, Abu Dhabi au­thor­i­ties are plan­ning to an­chor spend­ing at a flat level of Dh250 billion and tar­get rev­enues (in­clud­ing some in­vest­ment in­come from the Abu Dhabi In­vest­ment Author­ity) in­creas­ing through the pas­sage of a value added tax, crude oil pro­duc­tion in­creases (as Abu Dhabi Na­tional Oil Com­pany tar­gets ca­pac­ity at four mil­lion bpd by 2022) and oil sta­bil­is­ing at $50/bbl, the bank said in its re­port.

— is­sacjohn@khalee­j­times.com

Supplied photo

Bank of Amer­ica Mer­rill Lynch pre­dicts Dubai to post a small bud­get sur­plus in 2016. —

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