UAE to benefit most in GCC from global trade, tourism rebound
Nation in a stronger position than other countries in the region due to several positive factors
The UAE continues to benefit more from a rebound in world trade flows and growth in global tourism than other GCC economies, Oxford Economics said it its latest report.
The UAE, the Arab world's second largest economy, has a more favourable economic outlook because it is the most diversified economy in the GCC. Fuel generates just 22 per cent of the country's export revenues, said the report "Economic Insight: Middle East Q2 2017".
The report forecast that the UAE economy would accelerate at a rate of 3.3 per cent in 2018 on the back of an increase in government investments, a rebound in world trade flows and an upswing in global tourism, said the report produced by Oxford Economics for the accountancy and finance body Institute of Chartered Accountants in England and Wales (ICAEW). The Oxford Economics forecast is in line with projections made earlier this month by the International Monetary Fund, which predicts 3.3 per cent growth for the UAE in 2018.
In 2017, the report predicts that the UAE's growth would slow to 1.7 per cent, which is a more upbeat outlook than the IMF's 1.3 per cent projection.
Although the UAE's 2017 growth rate is almost half as fast as in 2016, it is represented by a greater contribution from the non-oil sector, which means GDP growth could accelerate to 3.3 per cent in 2018, Oxford Economics said.
The report noted that the UAE's infrastructure investments have helped unlock this growth potential. Dubai International Airport is ranked the world's third-busiest airport and DP World is the ninth-busiest container port globally.
Passenger traffic through Dubai International Airport increased 7.4 per cent in the first quarter of the year, and this improvement is mirrored in the wider non-oil sector.
Several key infrastructure projects are forging ahead, partly in support of Expo 2020 (the first to be held in the Middle East region), but also more widely driven by the ongoing expansion of trade and transport links. Overall, the number of construction projects awarded in the first quarter of 2017 was up 26 per cent compared to the same period last year.
"Business investment has also been supported by an improving financial environment. The stabilisation in oil prices, the easing pace of austerity, and sovereign debt issuance have all helped ease liquidity pressures in the banking system over the course of the past year or so," said the report.
Privately-held bank deposits were up by almost 9 per cent in the year to March, enabling lending to grow by seven per cent over the same period.
"The UAE is in a stronger position than other countries in the region due to its diversified economy, excellent infrastructure, political stability and ample foreign assets. Its reputation as a trade hub has helped the country to benefit from the rebound in the world economy more immediately than other economies in the GCC," said Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia.
However, the report said that UAE consumers will feel several drags on their spending power in the coming year or two. The introduction of VAT is expected to add two percentage points to inflation in 2018, pushing inflation to four per cent overall.
Consumers will feel further pressure as a result of recent government legislation to enable excise duties on soft drinks and tobacco of up to 100 per cent of the product value. Additionally, new regulations requiring all expats and dependents to hold health insurance in order to renew visas, will take a further chunk out of households' spending power, said the report.
According to the report, GDP growth across the GCC region as a whole will ease to just short of one per cent in 2017. Even though non-oil sector growth is likely to reach 2.6 per cent this year, it will be offset by a further three per cent contraction in the oil-producing sectors.
This underscores the need for governments across the region to increase their non-oil revenues, in order to offset longer oil production cuts and modest oil prices, said the report.
Tom Rogers, ICAEW economic advisor and associate director of Oxford Economics, said GCC countries have to step up their efforts and increase non-oil revenues. "The introduction of VAT next year is a start but it's not enough, other measures should be taken to maintain financial steadiness. These measures should be considered as part of broader economic diversification strategies."
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