Investment slowdown takes toll on Sharjah

Sharjah's real GDP growth to slow to 0.3 per cent in 2017 amid oil inspired economic woes, Moody's says.

Sharjah's real GDP growth is likely to slow to 0.3 per cent next year as headwinds from lower oil prices and a slowdown in investment into the country take a toll on the emirate's private sector, according to Moody's Investor Services.

At the same time, the rating agency noted in its annual credit analysis on the emirate that while Sharjah’s deficit was rising its debt burden was still low compared to its peers.

Moody’s has assigned the emirate an A3 credit rating with a stable outlook and that was unchanged in the latest report despite the economic volatility as Sharjah’s economy is more diversified than its peers.

“The slowdown in oil prices has had adverse indirect effects on Sharjah’s fiscal trend, although the competitive manufacturing sector and its relatively higher degree of economic diversification compared to the other emirates in the Gulf Cooperation Council provide some cushion to oil price volatility,” said Mathias Angonin, an analyst at Moody’s.

Sharjah’s real GDP rose by 0.6 per cent last year and by 1.6 per cent in 2014, said Moody’s.

The author cited the slowdown in the UAE Purchasing Manager’s Index, a key gauge of the country’s non-oil economy, as the main indicator for its predictions about the fortunes of Sharjah’s economy next year.

That index, sponsored by Emirates NBD, showed in October that economic optimism slowed for a third month running as levels of new employment in the country stagnated. According to the measure, economic sentiment slipped to its lowest level for six months in October as the amount of new work slowed.

The index, which covers manufacturing and services, slipped to 53.3, down from 54.1 in September. A figure above 50 signals that businesses in the country are expanding, while below 50 signals a contraction.

The IMF, which last month hailed the Arabian Gulf’s efforts to plug budget deficits, is projecting the UAE’s economy to grow at 2.3 per cent this year and 2.5 per cent next year.

The stability of the country’s economy has been largely due to a number of measures including spending cuts and debt raising in international markets that have prevented deficits from spiralling out of control since the price of oil began its steep descent in the summer of 2014.

As part of that effort to plug the deficit, Sharjah sold a US$500 million sukuk in January this year and a $750m sukuk in September 2014.

The report said among the challenges that face Sharjah are a rise in government debt, a narrow revenue base and its close ties with the other emirates, especially Dubai, which expose it to fluctuations in regional demand.

“Credit-positive developments would include a combination of further deficit reduction and stabilisation of the government debt ratio,” the report said.

“Credit-negative developments would include any widening of fiscal deficits that lead to a faster government build up as well as a material crystallisation of government-related issuer liabilities on the government’s balance sheet.”

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