By Soren Billing
EXCLUSIVE: DIFC's chief economist remains upbeat as oil hits 15-month low of $68.
Falling oil prices are unlikely to impact the UAE’s economic growth, the chief economist of Dubai International Financial Centre (DIFC) said on Thursday, as oil traded at its lowest level in more than 15 months.
Brent crude oil traded near $68.5 a barrel at 16:05 UAE time, down 3.3 percent from Wednesday, as traders continued to worry that a global recession could limit demand.
But DIFC chief economist Nasser Saidi said the UAE’s economic growth will only slow if there is a significant downturn in its trade with the rest of the world.
In a worst case scenario, the country’s growth would only slow by between 1 and 1.5 percent.
“The primary driver of growth is on the investment side [as opposed to consumption] and I think investments will continue at a high pace,” he said.
In the 1970s and 80s, Gulf states were highly reliant on oil revenues to finance their projects.
“The experience over the last five years is different, in that the accumulated surpluses have given countries a very strong cushion and enabled them to finance infrastructure and investment projects even though oil prices recede to below $80 or $90,” Saidi said.
Governments in the GCC are basing their budgets on an oil price of $35 to $40 per barrel.
Saidi added that many of the larger projects underway in the region, such as power plants and public transport systems, will be self financing in the long term since they are based on user fees.
Looking ahead, emerging markets will provide higher returns than western counterparts and as a result investment from sovereign wealth funds (SWFs) is likely to shift to those countries.
Signs that Gulf Arab states are investing more at home should be seen in that context and is not a sign that they are trying to boost their countries’ economic growth, he said.
“The United States going into a recession does not necessarily mean that we are going to shave off half our economic growth,” he said.