Uncertainty casts doubt on economy's future, so optimism is the way forward
Executives draw comfort in efforts of UAE government to mitigate pandemic's economic effects
The global economy is suffering due to the coronavirus pandemic. While I am cautiously optimistic that it will get back on track soon, there is a lot of uncertainty. This uncertainty has caused concern and panic amongst people around the globe, as businesses continue to struggle and people losing jobs.
The International Monetary Fund (IMF) has projected that the global economy shall contract by minus three per cent this year, making it worse than the global financial crisis. The IMF has also estimated a real GDP contraction of about 3.5 per cent for the UAE in 2020. The pandemic is having a severe impact on economic and financial markets and virtually all industries are facing challenges as a result. The restrictions on the movement of people have had a well-documented impact on the leisure, transport, retail and entertainment industry in particular, but the effect on the financial statements of the entities will be widespread across variety of industries.
Nearly two-thirds of 361 executives and professionals independently surveyed by Crowe expect to see a positive trend between March 2021 and January 2022. They draw comfort in the efforts of the UAE government to mitigate the pandemic's economic effects so far. However, most of them have little certainty about when the Covid-19 impact on their organisations will lessen. The government continues to review implications of various measures adopted in supporting the country's business continuity during these times. Hope is also built around the Covid-19 vaccine and its successful commercial deployment.
Most of the executives surveyed are weighing the difficult decisions in the wake of the pandemic with many being concerned about the health and safety of their employees. This can be clearly deciphered from the fact that many companies continue to allow their people to work from home or at least have adopted the hybrid structure, offering flexibility to their people. This kind of flexibility is even welcomed by working parents as some schools are still operating online and even for those schools that are open, there are strict guidelines that children or parents with any kind of sickness should not be sending their kids to their schools.
People sound cautiously optimistic on how soon the Covid-19 impact would lessen over time, with only 10 per cent of people expecting a positive trend before the end of this year. Thirty-two per cent of the respondents said that the effect of pandemic would ease by March 2021, 31 per cent say that they expect to see recovery by January 2022, while 27 per cent were pessimistic and said that it may take a long time and possibly over two years before the economy can stand on its feet again.
One point of consistency stands out across the board is the belief that 2020 shall turn out to be a bleak year financially, as 90 per cent of respondents expects a moderate to severe decrease in their revenues this year, likely losses for most of the industries and, not to forget, the tight liquidity situation and its effect on the management of cashflows. This in turn has reduced the propensity to save and spend with rising unemployment, price rises and decline in individual credit profiles.
While the UAE government has managed the situation well, the trust in the leadership's measures will turn the tide sooner for the economy. However, the UAE's dependency on other markets may hurt the travel and tourism, hospitality and luxury retail sectors, which may find themselves in a tough situation in the near future. Few businesses expect a positive impact on their business due to Covid-19. Some pointers suggest that the UAE economy may recover to pre-Covid-19 levels in 2021, with steady growth then seen continuing until 2024. Potentially, a V-, U- or W-shaped recovery shall also be supported by various factors including oil prices, the geopolitical scenario, government spending, FDI policy and the upcoming Dubai Expo next year.
Financial hubs Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) have managed well so far, owing to the world-class regulations that required them to be well-prepared for the worst-case scenarios and that they have models to manage the risk. Financial institutions in the DIFC and ADGM saw a transition to work form home to be smooth, with little impact on their ongoing business operations. The profitability of the firms could be impacted during the year due to a general market slowdown.
The fact that a lesser number of SMEs have cut down on their workforce or their salaries in the pandemic's early days goes on to show that they were trying to get through difficult times without inflicting economic damage on their employees - perhaps hoping of simultaneously steadying the broader economy. Likewise, the efforts of the banking sector despite the job losses are commendable. We can hope that employees give it back to their employers, who stood by them in difficult and unprecedented times by showing their loyalty, when things get better. We hope SMEs can cope better in terms of liquidity and cash flow issues, to bring customers back, to resume normally and get benefits of the stimulus package.
Notably, trust in the economy shall improve market confidence. Bankers and auditors have to play a crucial role in improving market trust. Monitoring of healthcare, social activity, financial and economic indicators shall be crucial in the road ahead. A prudent way forward is to have an optimistic mindset while knowing and undertaking the right efforts, in the right direction.
Saad Maniar is senior partner at Crowe and chairman of the Members Advisory Committee of ACCA. Views expressed are his own and do not reflect the publication's policy.
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