By Sarah Townsend
Capital Economics says fiscal squeeze will bite this year but recovery expected 2017/18
The UAE’s economy is likely to record its slowest growth since 2010 this year at around 2 percent, according to a new analysis.
However, the country’s strong balance sheet means it should start to recover in 2017-18, Capital Economics said in its latest UAE forecast.
The report noted that despite low oil prices, the UAE’s economy held up well last year with GDP growth picking up to 3.8 percent from 3.1 percent in 2014 – helped by strong growth in the oil sector, it said.
By contrast, the non-oil economy recorded its weakest growth in five years. This was largely due to fiscal tightening – fuel prices were deregulated last year and electricity and fuel prices were hiked, while Abu Dhabi cut spending by 20 percent.
As fiscal tightening continues throughout 2016 and the boost from oil falls, growth will fall to 2 percent by the end of the year, compounded by the fact that Dubai in particular is highly exposed to weak economic growth across the rest of the Gulf.
However, Capital Economics said recovery is expected in the 2017/18 fiscal year. The UAE has been more proactive in terms of economic diversification than other GCC states, it said, and is therefore expected to cope relatively well with a prolonged period of low oil prices and to be one of the Gulf’s best performing economies in the coming years.
What is more, the UAE is likely to be one of the main beneficiaries from a resurgent Iranian economy as it has “by far the strongest trade ties to Iran in the Middle East and North Africa (MENA) region”, said Capital Economics economist Jason Tuvey.
“Exports to Iran are equal to 9 percent of [the UAE’s] GDP and we’ve argued before that the Islamic Republic could see strong growth of 6-8 percent in the coming years.
“Meanwhile, the UAE’s construction activity should receive a boost as preparations for the 2020 World Expo are stepped up,” Tuvey said.