IIF more bullish on UAE growth
Global growth momentum still limited, fragile
Forecasting a more bullish outlook than the latest projections made the World Bank for the UAE, the International Institute of Finance, or IIF, has reported that the nation's economy would grow three per cent in 2016.
Data from the Washington-based IIF indicates that the UAE's growth rate will be one per cent higher than the recent World Bank's forecast of two per cent on the backdrop of a global growth of 2.6 per cent in 2016.
The IIF's Global Economic Monitor pegs the UAE's growth in 2017 at 3.1 per cent as it predicts inflation in the second-largest Arab economy to slow down to 1.7 per cent in 2016 from four per cent in 2015 while the current account balance to drop below one per cent of the GDP. The IIF pegged UAE growth in 2015 at 3.5 per cent.
For Saudi Arabia, the Arab world's largest economy, IIF forecast was less upbeat at 1.4 per cent in 2016, and 1.8 per cent in 2017 vis-a-vis the World Bank's recently revised projection of 1.9 per cent.
The World Bank in its Global Economic Prospects report cut its 2016 growth forecast for the GCC nations to two per cent amid low oil prices and budgetary spending cutbacks. The dimmer outlook for the GCC was predicted as the bank downgraded its global growth forecast to 2.4 per cent from the 2.9 per cent projected in January on the back of "sluggish growth" in advanced economies. The bank said it expects the continued low oil prices, together with tightening fiscal and monetary policies, will drag on activity across the GCC this year. The regional growth forecast is down from last year's 2.9 per cent and is at the slowest pace since 2009.
For the UAE, the World Bank's latest forecast was two per cent, which is 1.1 per cent down from its January estimate of 3.1 per cent. It predicted that growth in the second-largest Arab economy would pick up next year to touch 2.4 per cent.
The forecast by the IIF - the global association of the financial industry with close to 500 members from 70 countries - said global growth momentum remains limited and fragile, and the market turnaround seems to have peaked recently as underlying worries about the outlook threaten to resurface.
"Against this background, we remain cautious on the outlook. We continue to project global growth in 2016 at 2.6 per cent picking up modestly to 2.9 per cent in 2017, which would be the sixth consecutive year under three per cent. Since our February report, reassuring policy signals from China, the Fed and the ECB have helped to reduce concerns about tail risks, prompting a return of risk appetite and a recovery in financial markets," the IIF said.
The IIF warned that the biggest economic risks for its baseline are further turbulence spilling out of China's difficult transition and the Fed's shift to tighten rates. Political risks are a rising concern, including the rising anxiety related to US presidential elections in November, as populations grow increasingly frustrated by disappointing economic performance.
For Saudi Arabia, the IIF noted that serious fiscal consolidation is underway as the kingdom has moved quite aggressively to protect fiscal balances from the oil price drop.
"Government spending was cut by 15 per cent in real terms in 2015 [compared to an average annual real increase of 12 per cent in 2001-14], and a further cut of 16 per cent is envisaged for this year. Low-priority projects have been cancelled, and subsidies on fuel, electricity and water have been reduced."
The IIF now expects fiscal measures to lower Saudi fiscal break-even oil price to $77 a barrel in 2016, from $97 in 2015. "We are projecting growth to slow to under two per cent in 2016 and 2017 due to fiscal headwinds, negative wealth effects, and tighter credit conditions," it added.
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