UAE economy on the up in 2017, but late payments still an issue

Country is in stronger position than the rest of the GCC due to its diversified economy, says Coface
UAE economy on the up in 2017, but late payments still an issue
By Sarah Townsend
Mon 06 Feb 2017 03:05 PM

The UAE’s economic growth is expected to pick up in 2017 to reach 2.5 percent, but delayed payments are up 4 percent due to lack of bank funding, a report has claimed.

All GCC economies recorded a sharp slowdown in 2016 amid public spending cuts, tightening liquidity and investor uncertainty. Kuwait was the only GCC state not to see economic contraction last year, according to credit management company Coface.

However, the UAE is in a stronger position than other countries in the region due to its diversified economy and political stability. In January, Coface categorised the UAE as A4 (“acceptable risk”), whereas its overall Middle East risk assessment showed that three-quarters of the region’s sectors are considered “high” or “very high” risk.

The latest report showed that the UAE witnessed decelerated growth in 2016 of 2.3 percent, but an uptick to 2.5 percent is expected in 2017 due to ongoing diversification and investments in the forthcoming Expo 2020.

The UAE’s public deficit widened significantly in 2016, said Coface, but it is still smaller than that observed in other GCC countries. Also, public spending is expected to remain unchanged in 2017, with the UAE announcing a forecast budget of $13 billion focused on the energy and water sectors, and the implementation of the Sheikh Zayed public housing programme.

The report added that the UAE’s business climate – already considered the most favourable in the region – is on an “improving trend”, thanks to the expected passing of the new insolvency law, “which should provide a framework for the process of winding up and restructuring companies in difficulty”.

Massimo Falcioni, CEO of Middle East Countries at Coface, said, “The UAE has remained relatively resilient in the face of lower hydrocarbon prices because of its economic diversity, but the lower oil revenues left government spending constrained and this had a spillover effect on all economic activities.

“The slight rise in oil prices now should give a corresponding impetus to the UAE economy. Abu Dhabi, being the most oil-dependent emirate will continue to see a slowdown in 2017.

“Dubai should be more resilient but some non-oil economic activities could still falter. Overall, the country’s growth will be driven by the tourism and financial sectors, while difficulties in the construction sector will remain.”

However, delayed payments in the UAE were up 4 percent in 2016 due to liquidity issues that affected bank lending, Coface added. “Comparing figures of third quarter 2016 from the previous quarter of the same year, the highest increase of overdue notifications in the UAE was registered from the metal traders and building materials or construction sector (+26 percent), followed by the general trading sector (+22 percent),” Falcioni said.

Looking more broadly across the rest of the GCC, Coface said economic growth is expected to improve across all states except Oman and Bahrain in 2017.

Saudi Arabia’s economic growth is expected to accelerate to 1.8 per cent in 2017 from 1.3 per cent in 2016.

Qatar’s strong financial reserves and gas revenues will ensure continued public sector spending ahead of the FIFA 2022 World Cup, and keep economic growth relatively buoyant at a forecast 3.3 percent in 2017, up from 2.6 percent last year.

Kuwait’s economic growth more than doubled from 2015 to 2016 going from 1.1 percent to 2.4 percent. In 2017, the country will grow more and reach 2.6 per cent, Coface said.

Bahrain’s economic growth will shrink further to 1.7 percent from 2 percent in 2016. Oman’s economic growth will also dip slightly again to be 1.7 per cent in 2017 from 1.8 per cent in 2016.

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