New survey shows that the sharp rise in oil prices is a key factor in improved sentiment across the Middle East
Business confidence in the UAE rose to its highest level for three years in the second quarter of 2018, according to a new survey.
The latest edition of a survey by the Association of Chartered Certified Accountants (ACCA) and IMA Global Economic Conditions showed that across the Middle East and in the UAE, confidence rebounded to its highest level since Q2 2015.
It said the key factor behind the recovery in confidence is the sharp rise in the oil price, which peaked at $80 per barrel in late May, compared with a low of just $35 per barrel at the start of 2016.
This has resulted in an increase in revenues coupled with the introduction of VAT in the UAE and Saudi Arabia, which has led to an ease in fiscal austerity, it added.
Lindsay Degouve de Nuncques, head of ACCA Middle East, said: "The economic outlook across the Middle East and the UAE will continue to be driven mostly by the oil price and changes in fiscal policy.
The recent OPEC deal, which was agreed in late June and saw member countries agree to raise production, is likely to depress prices over the coming months, however with VAT being introduced across the GCC - with the UAE and Saudi Arabia live - it will relieve the pressure that was once felt prior to this fiscal policy being introduced, which will continue to provide economic relief and reduce further oil price dependency on economic growth.
"It’s good to see the improvement in confidence across the Middle East region, and while oil prices are a key factor behind this, expenditure for the 2020 World Expo in Dubai has also helped, along with an easing of austerity, but this diverse region is not immune from global economic shocks and therefore it is advisable that businesses should not be complacent."
The survey cautioned that the introduction of VAT at the start of 2018 in the UAE has pushed up inflation, which will weigh on growth by depressing consumers’ purchasing power.
It added that higher interest rates in the US will also drag on prospects because the UAE’s exchange rate is pegged to the US dollar and local interest rates closely track those in the US.
Globally, the survey said the economic recovery that started in late 2016 is starting to slow down and lose momentum, with confidence in Q2 dipping from its Q1 high.
Although it remains high by recent standards, the slight fall in confidence reflects increasing fears of a trade war between the US and China. This continues to effect global outlook, with China’s economic sentiment falling sharply.