Predicting growth is difficult
Why IMF lowering its growth forecast for the UAE is important
Forecasting economic growth is tricky business, and in an era of volatile financial and economic markets and an unpredictable political climate, it becomes an arduous task.
But forecasts are needed to help set economic policies and give direction where governments want to go with their visions.
The IMF has lowered its growth expectation for the UAE for next year by one percentage point to 3.4 per cent. It cited low oil prices as a risk to growth, particularly if the deal to cut output between Opec and a group of countries led by Russia fails to soak up excess supply in the market and achieve its goal of bring oil inventories down to the five-year average.
The fund nearly halved its forecast for oil growth to 3.2 per cent for next year and cited concerns about compliance with the oil deal, which could push prices lower. For this year, the overall growth forecast was lowered slightly to 1.3 per cent from 1.5 per cent.
Meanwhile, the Bank of America Merrill Lynch had a more bearish outlook in April. It forecast the overall UAE economy to grow by 0.9 per cent this year because of contraction in the oil sector from the deal on output cuts.
The bank, however, agreed with the IMF in forecasting a
The IMF has recognised the efforts the UAE is making to help wean its economy off oil
3 per cent or more growth in non-oil GDP in the medium term, thanks to investment in the lead up to Expo 2020.
Reconciling economic forecasts from analysts with government projections is another task.
The Central Bank of the UAE, in its first quarter report, projected that non-oil GDP will pick up pace this year and grow at 3.1 per cent, compared with the IMF estimate of 3.3 per cent, and 3.7 per cent next year, thanks to economic expansion in the UAE’s trading partners and slower pace of fiscal reforms. It didn’t give an overall growth forecast.
But all these forecasts point to the same thing – the non-oil economy will be the engine of growth for the UAE, which is one of the most-diversified in the region.
The IMF has recognised the efforts the country is making to help wean its economy off oil, lauding the introduction next year of value added tax and the removal of energy subsidies, among other reforms.
A measured response to oil price movements is needed, as the IMF has emphasised. “The authorities’ efforts to make the economy more productive are key to alleviating the impact of the oil shock on medium-term growth prospects,” the fund said.