UAE, Saudi growth is down but not out: Economists
Even as the International Monetary Fund (IMF) chief Kristalina Georgieva last week confirmed that the global economy is now in a recession, there is a silver lining for this region.
The UAE and Saudi Arabia's economy has slowed a bit but it is still very far away from being in the red. Natural inbuilt resilience and the factoring in of a long term strategy has ensured that they will more than hold the line.
It is projected that oil-producing GCC countries will fare better than the broader Middle East and North Africa (Mena) region despite the across the board cut in growth forecasts for 2020. This despite the impact of the coronavirus outbreak pandemic and lower oil prices, say economists.
Many financial experts foresee this positive growth for the UAE, KSA and GCC region even as other parts of the world fight the spectre of recession.
Simon Ballard, chief economist at First Abu Dhabi Bank has this to say: "The trajectory of economic performance in the UAE will be of a very shallow 'U' curve. It will not be an 'L' and the sharp 'V" shape may not be on the cards. We are reducing our GDP growth forecast for the UAE for 2020 down to 0.9 per cent from 2.4 per cent; a move designed to reflect the contractionary economic impact of the Covid-19 pandemic. At the same time, we see the economic challenges being mitigated by an accommodative government and the central bank policy. Importantly, we acknowledge that our forecast lies mid-range of current market expectations."
He also signposts a budget deficit of up to four per cent this year as lower oil prices and sluggish economic activity will weigh on the government's balance sheet. On the plus side, increased oil production in the context of low, but stable prices, together with a steady and dependable ongoing commitment from the UAE government and its fiscal institutions towards shoring up infrastructure spending and fiscal stimulus will go a long way in cushioning the fallout over the coming quarter.
Garbis Iradian, chief economist at the Institute of International Finance, has also predicted positive growth for the UAE and other GCC countries with the exception of Bahrain. He indicates increased production and is of the opinion that this will help the region to offset the impact of Covid-19 and the decline in global oil prices. IIF has predicted a 0.6 per cent growth for the region.
The GCC is clearly in the driver's seat as opposed to the Mena region where Capital Economics has predicted negative growth of 1.7 per cent.
"While we have cut our growth forecasts for the GCC economies, the region is still seen to be in positive territory. It should certainly be perceived as a relative oasis of positive activity, compared to many of the more sombre forecasts for US, European and other G20 countries' economic activity this year," he said.
He predicted that the global economy, the US and Germany will witness 2.2 per cent and 2.8 per cent and 6.8 per cent contraction respectively. In this context UAE and Saudi Arabia will see 0.9 per cent and 0.75 per cent growth following the revision in growth forecast.
Ballard also issued caution, "The problem for many Mena countries remains that they have only limited fiscal headroom with which to provide stimulus to combat the deteriorating macro environment. They may, therefore, be unable to offer any meaningful stimulus packages in order to support their banking and SME sectors," he said.
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