Standard Chartered expects a slight pickup in the UAE’s non-oil economy with a 3.2% growth in 2017 supported by “a loosening of belt” by Abu Dhabi.
The bank predicted the country’s overall economic growth for 2017 at 1.5%, instead of 2.1% as previously estimated, based on a 2.3% contraction in oil GDP.
The bank raised the UAE’s 2016 growth estimate of the USEA to 2.6% prior, on 2.7% predicted growth in non-oil GDP.
Regional head of Research, at the bank, Dima Jardaneh stated that the lender expected inflation in the UAE to pick up in 2017 after moderating the previous year. The latest monthly data shows that inflation rose to 2.3% year on year in January from 1.2% at end-2016 on the back of higher gasoline prices as domestic fuel prices were raised by 0.6% for January. “We factor in another increase in prices in 2018 assuming that VAT is introduced as planned”, Jardaneh said.
Fiscal Deficits are expected to narrow further “Based on 9 months 2016 results and factoring in higher non-hydrocarbon revenues, we revise our fiscal deficit estimate to 1.5% of GDP for 2016, down from 2.8%.”
The bank raised the surplus estimate to 2.1% for this year from 1.5% prior and 4.2% in 2018 against the 3.3% estimated before.
“We see this improvement in fiscal performance as an opportune time for the government to consider stimulus policies to boost growth.” Said Jardaneh.
According to introductory balance of payments data, trade balance narrowed in 2016 to $68 billion form $89 billion back in 2015. “This is largely attributed to the lower value of hydrocarbon exports, which could not be offset despite lower imports. We revise our current account surplus estimate to 3.2% of GDP for 2016 from 1.9% on account of lower imports. On the back of this, we also raise our forecasts for 2017 to 6.1% and 2018 to 6.5%”, she said
Mario Maratheftis, the Bank’s chief economist stated that the world economy is currently benefitting from the strong US growth, booming asset markets and steady export data from Asia. Much of this is due to high oil prices, China’s inventory cycle and the reflation expectations in the US. Maratheftis also said that the US policy possessed a particular risk to the outlook. “Although markets are excited about the prospect of President Trump’s reflationary policies, it’s still unclear as to whether they will materialise.”
At the same time, the FED is embarking on a rate-hiking cycle. This should not be too challenging over the coming months, but tighter monetary policy should ultimately impact economic activity, likely in 2018, said Maratheftis.
"Oil prices are now in a sweet spot. Ranging between $45 and $65, they are not so high as to be inflationary and hinder growth and they are not low enough to lead to a deflationary spiral and a lack of investment in oil production," said Maratheftis.
"Despite elevated levels of event risk, the world economy has started 2017 well. Animal spirits are back. We think the world economy still has room to run over the next few quarters but strong confidence alone will not be enough to sustain this," he said.
He said the positives currently being felt are mostly transitory in nature, and expects monetary policy narrowing to dampen growth over the medium term. "Events will be crucial to keeping animal spirits strong and for now, the key risk is US policy unpredictability and the threat of trade wars," said Maratheftis.