Economic growth of UAE projected to pick up pace this year
Economic performance is likely to improve this year with the following;
- firming oil prices
- improvement in global trade
- expected easing pace of fiscal adjustment
According to the latest assessment of the UAE economy by Institute of International Finance (IIF), a global association of banks and financial institutions. The country experienced a deceleration in overall growth (0.8%) like its GCC (Gulf Cooperation Council) peers in last year (2017) because of oil production cuts under the extended OPEC (Organisation of the Petroleum Exporting Countries) agreement and fiscal consolidation in Abu Dhabi.
Garbis Iradian, Chief Economist, Mena of the IIF said, “We expect nonhydrocarbon real GDP growth to pick up from 2% in 2017 to 2.7% in 2018. The introduction of the value added tax (VAT) at 5% in January 2018 and the modest increase in import prices could raise average CPI inflation from 2% in 2017 to 3.6% in 2018,”
The country experienced subdued CPI inflation in 2017 due to a significant decline in rents, which has more than offset higher import prices. Property prices are estimated to have declined in Abu Dhabi and Dubai by 15-20% from their peaks in 2014.
According of IIF analyst, the UAE particularly Abu Dhabi, can afford a more gradual pace of fiscal adjustment to reduce the impact of lower oil prices on economic growth.
Iradian said, “We expect the fiscal consolidation in Abu Dhabi to ease this year, while Dubai’s fiscal stance remains expansionary,”
UAE Central Bank Data on credit growth released in December showed weak credit demand in 2017. Gross loans fell 0.9% month-on-month in December, resulting in an annual growth of just 1.7%. Annual growth in deposits remained strong at 4.1% in December 2017. The UAE Central Bank’s latest credit sentiment survey showed a marginal increase in business loans, mainly attributable to the strengthening in demand in Dubai. On the other hand, demand for personal loans in aggregate was flat, with most respondents reporting no change. In terms of outlook, demand for both personal and business lending was expected to increase only on modest scales. Lower loan growth combined with lower loan demand are expected to keep the banking sector highly liquid. The loans to deposit ratio declined to 97.1% in December 2017, as compared to 99.6% in December 2016. According to the IIF data, the liquid assets ratio has increased from 16.2 per cent in 2016 to 18.2 per cent in 2017. Banks remain adequately capitalised with 17.4 per cent Tier 1 ratio at end-2017, nonperforming loans to total loans have declined in recent years to 5.2 per cent. Net interest margins improved since the beginning of this year as loans reset at higher rates and funding costs improved as liquidity conditions eased.
For the GCC, the IIF expects overall real GDP (gross domestic product) to shift from a contraction of 0.2% in 2017 to a growth of 2% in 2018, supported by the partial recovery in oil prices and government stimulus, particularly in Saudi Arabia. Domestic demand should strengthen with improved private sector confidence. The fiscal deficits are expected to narrow. The fiscal situations in Saudi Arabia and the UAE are seen on firmer footing.
Source: Gulf News