UAE economy set to speed up in 2018

Dubai - Thanks to rapid economic diversification, nation enjoying sustained growth despite low oil prices

The UAE non-oil sector economy is expected to grow 3.1 per cent this year and accelerate to 3.5 per cent in 2018, Central Bank of the UAE Governor Mubarak Rashid Al Mansouri said on Sunday.
Addressing a meeting of Arab central bank governors in Abu Dhabi, Al Mansouri said thanks to its rapid economic diversification, the UAE was enjoying sustained growth despite low oil prices.
The International Monetary Fund expects the UAE economy to surge to 3.4 per cent in 2018.
"The UAE's economic activity is expected to strengthen gradually in the coming years with firming oil prices and other global indicators, and an easing pace of fiscal consolidation," the IMF executive board said in a statement after concluding its Article IV Consultation with the UAE.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said economic indicators continue to reflect a gradual recovery in real non-oil activity in 2017, with some moderation of the headwinds seen in 2016. She said after three years of deceleration, a Dubai-led firming of investment activity is driving the recovery, including projects linked to Expo 2020. "We believe that this is also resulting in an easing of fiscal consolidation. We also see a moderate pick-up in external demand, supported by trade and tourism," said Malik. Positively, the impact of higher central bank interest rates in the US and UAE has been limited by the improved domestic banking sector liquidity, thereby reducing the upward pressure on market interest rates.
"We expect to see a further pick-up in non-oil growth in 2018 and beyond as investment momentum builds ahead of Expo 2020. However, the pace of recovery will likely be dampened by the introduction of VAT in 2018, resulting in a more gradual acceleration, she said.
Malik said despite signs of a pick-up in non-oil activity in 2017, a number of external and domestic factors are checking the pace of the recovery. "Thus, real non-oil expansion will likely stay below the pre-2015 trend levels in our two-year outlook period."
The bank estimated that the fiscal deficit would narrow to a contained 2.9 per cent of GDP in 2017 despite an expected increase in government expenditure.
"We see the UAE's commitment to fiscal reform as positive, especially given the weak medium-term oil price outlook. VAT is expected to be introduced in January 2018, and we estimate that the government could earn 1.6 per cent of GDP in the first year of its introduction." 
Malik said the bank remained positive on the UAE's economy given the front-loading of fiscal reforms, its relatively lower breakeven oil price and strong FX reserve position. "We continue to see the UAE outperforming other GCC and Mena economies in the medium term," she said.
- issacjohn@khaleejtimes.com