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UAE inflation poised to average 2.5% in 2014
Issac John / 20 February 2014
Driven by rising rental costs, inflation in the UAE is expected to average around 2.5 per cent in 2014, Al Masah Capital said.
In 2013, inflation rate in the UAE increased by 1.1 per cent during the first 11 months, driven mainly by rising housing costs. However, a strong dollar and weak global inflation are helping to keep imported inflation in the UAE under control, the alternate asset management company said in a report.
Rental rates for mid-range villas and apartments accelerated by around 20–30 per cent in the first nine months of 2013, compared to the rates a year ago. Housing and utility prices, which account for nearly 40 per cent of the UAE’s inflation basket, increased 1.2 per cent in October 2013.
The report noted that the UAE’s Central Bank continued to maintain a loose monetary policy in 2013. Its three-month interbank rate was at 1.3 per cent in the beginning of the year, but dropped below one per cent in May and 0.9 per cent in July, indicating high liquidity in the market.
The UAE is estimated to have recorded a budget surplus in 2013. The UAE federal budget recorded a fiscal surplus of AED6.4 billion in the first half of 2013. According to the Ministry of Finance, revenues during the period stood at Dh31.8 billion, while spending totalled at Dh25.4 billion.
“Although 2013 figures are not yet available, in light of prioritised spending on social welfare and development, the UAE’s fiscal surplus is likely to have dipped a bit from around 8.6 per cent of GDP recorded in 2012. For 2014, a federal budget of $12.5 billion was approved, with a majority of it allocated to the health sector, followed by expenses for government services and housing development projects. The UAE is estimated to have a budget surplus of 6.9 per cent of GDP in 2013 and 6.6 per cent of GDP in 2014,” Al Masah said.
The UAE has a healthy current account surplus. It has structurally recorded current account surpluses ranging from three per cent to 17 per cent of GDP due to large oil exports, the report said.
In 2013, the country is likely to have posted a current account surplus of 15.2 per cent of GDP compared to 17.3 per cent in 2012. The drop was in line with a minor change in oil prices, strong import growth, and widening of the non-merchandise deficit. In 2014, the current account surplus is projected to improve marginally to 15.6 per cent of GDP, driven by growth in the non-oil sector.
According to the IMF, the UAE’s total gross debt is likely to have increased to $65 billion by December 2013, equivalent to 16.7 per cent of 2013 GDP. In 2014, the IMF projects government’s gross debt to increase from $65 billion to $68 billion, which is equal to 16.8 per cent of GDP.
The Dubai Financial Market General Index was the best performer among the GCC indices, soaring 107.7 per cent in 2013, boosted by strong economic growth, recovery in the real estate market, Morgan Stanley Capital International (MSCI)’s announcement of transition from frontier to emerging markets status, and the recent Dubai Expo 2020 win.
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