US renewed sanctions on Iran will not significantly affect the UAE as long as banks are prepared for the consequences
The UAE economy is expected to grow 4.2% in 2019 due to higher oil prices and a stronger non-oil sector, the governor of its central bank told reporters at the IIF MENA Financial Summit in Abu Dhabi on Tuesday.
Mubarak Rashed al-Mansoori said the UAE will avoid significant impact from the renewed US sanctions on Iran as long as banks are prepared for the consequences.
“Things are starting to materialise, growth is there, liquidity is there, a lot of government initiatives are there. I think we are in good times,” he said.
“Actually, we don’t expect material impact provided that when the previous sanctions were on, banks have taken measures and when they lifted sanctions, banks did not go back as normal due to having to keep their relations with clearing banks in the US,” he added.
In September, the central bank said it expects the UAE’s inflation-adjusted GDP to rise 2.3% in 2018, however Mansoori said the year will likely close at a 2.8% growth.
This week, Fitch Ratings also said higher oil prices are resulting in a quick rebound of revenue and increased government expenditure. It comes after significant reforms saw the UAE cut its spending in 2015 and 2016, resulting in slow economic growth.
While the UAE and Iran have long maintained a close trading partnership due to their geographic proximity, political tensions have negatively affected their ties. On Monday, the US renewed its sanctions on Iran in a bid to limit its oil and shipping industries.
Only two Iranian banks, Bank Melli and Bank Saderat, will continue to operate in the UAE, since their operations are limited to Iranian customers living in the country, Mansoor said.
Jameel Ahmad, global head of Currency Strategy & Market Research, said it's a credit to the UAE that its economy is expecting a significant increase of economic output next year at a time where many economic forecasts around the world are being revised lower due to numerous global uncertainties.
"Prolonged trade tensions between some of the largest economies in the world, pressures within emerging markets and other areas of political risk across different regions represent a few of the reasons why growth expectations elsewhere have been downgraded," said Ahmad.
"One advantage that the UAE has over several of its global emerging market peers is less exposure to financial market fluctuations due to its peg against the Dollar and the impact this can have on economic expectations. What will be interesting to monitor moving forward is whether the upbeat UAE forecasts could tempt investors to invest in domestic equity markets as a result of increased economic confidence over this positive news.”