The IMF is expecting robust growth in the UAE’s non-oil economy over the next couple of years, despite the drag from the oil sector, which is still recovering from the world oil glut.
The fund forecasts non-oil real GDP growth at 3.8 per cent this year and 3.6 per cent next year. Its views are echoed by the Dubai-based lender Emirates NBD and Bank of America Merrill Lynch (BOAML).
“The non-oil sector is driving growth in the GCC, which is a positive development,” Jihad Azour, the IMF’s new director for the Middle East, North Africa and Pakistan (Menap) said at a press conference in Dubai yesterday.
“As the non-oil sector takes the lead, we feel the level of fiscal adjustment needed is less than it was in 2016,” so that an easing in regional government’s austerity measures, together with a pickup in world economic growth, will help maintain growth in the region’s non-oil sectors, he said.
The IMF view was reflected in a new report yesterday by BOAML.
“The UAE has managed a soft landing [and] we expect non-oil real GDP growth to have bottomed out as the fiscal drag eases and infrastructure activity picks up,” said Jean-Michel Saliba, BOAML’s regional economist.
The forecasters see continued fiscal reform – such as the introduction of a 5 per cent value added tax and government spending restraint, as well as the Expo 2020 spending – as strengthening non-oil UAE growth.
Mr Azour defended the sharp downgrade in the IMF’s economic growth forecast for the region’s oil producers, including the UAE. It was the first regional economic report since he took over in March.
He said that the cut in production following Opec’s output restraint deal at the end of last year was the main reason for the sharp cuts in the UAE’s and GCC’s economic growth forecast, because of the decline in size of oil sector.
In other words, the gains from the oil price increase so far this year are being outweighed by the loss of volume for the UAE, Saudi Arabia and other countries that are bearing the main burden of oil production cuts, in the IMF’s estimation.
Opec members agreed last year to trim production for six months, which started in January, to shore up oil prices. Non-Opec members, including Russia, joined the deal to collectively cut their output by 1.8 million barrels per day (bpd) in the first half of this year.
The IMF said it expects real GDP growth for the seven oil-exporting countries in the Middle East of 1.9 per cent this year, a full percentage point lower than the 2.9 per cent growth it forecast for the group in October.
For the UAE, the IMF assumes that oil output will be down by 5 per cent for the whole of this year, at below 2.9 million bpd.
The IMF’s forecast for the UAE real GDP growth is 1.5 per cent this year, significantly below that of Emirates NBD bank, the UAE’s largest commercial bank, which expects 3.4 per cent.
“Our difference is related to oil and our assumption at the start of year that oil output would be less than last year but not as low as the IMF is indicating,” said Tim Fox, Emirates NBD’s chief economist, who also spoke on the IMF’s press conference panel.
Mr Fox is sceptical that the GCC Opec countries will cut as deeply as they said they would over the year, even if they agree later this month to extend the output deal for another three or six months. “Whatever the stated amount of cuts expected, it may not fully reflect reality,” Mr Fox said.
amcauley@thenational.ae
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