Standard Chartered, one of the biggest international banks in the UAE, is forecasting a slowdown in the country's economic growth this year as the price of oil plunges.
“We expect the UAE economy to grow 3.8 per cent in 2015, slowing from 4.5 per cent in 2014,” said Shady Shaher, a Dubai-based senior Middle East and North Africa economist at Standard Chartered.
“Weaker oil-sector dynamics will directly impact growth in the hydrocarbon sector through lower output.
“Growth is set to moderate from a high base. The UAE economy has boomed in 2014 as both Dubai and Abu Dhabi have enjoyed solid growth driven by the non-oil sector. Government investment in infrastructure has driven the Abu Dhabi economy, and Dubai has benefited from its position as a regional trade and services hub.”
The bank expects Dubai’s trade sector to grow 4.5 per cent this year, versus 8 per cent in 2014. Meanwhile, the tourism sector is likely to grow 5 per cent versus the 9 per cent it gained in 2014.
Economic growth in Abu Dhabi, which has the world's seventh-largest proven oil reserves and 95 per cent of the UAE's oil, is also expected to slow down, the bank said.
“The combined impact of a drop in oil output and moderating spending is likely to hamper growth in Abu Dhabi,” Mr Shaher said.
“We expect Abu Dhabi to cut close to 300,000 barrels per day in 2015 as Opec members are forced to reduce output in an oversupplied market. As a result, we expect the emirate’s hydrocarbon sector to contract by 5 per cent.”
Before the drop in oil, the Arabian Gulf region had been a bright spot in the global economy over the past two years, with GDP growth averaging more than 4 per cent as governments spent big on infrastructure.
In Dubai alone, officials estimate that staging the Expo 2020 will require more than US$8 billion in further infrastructure spending and would boost the economy by $23bn, equivalent to about 24.4 per cent of GDP, between 2015 and 2021.
Steady oil prices over the past couple of years have boosted coffers throughout the Gulf and will allow its countries to weather the storm for the time being. The net current account surplus of the region stands at about $2.4 trillion, according to Mr Shaher.
Economists vary in their opinion about the oil price necessary for the region’s economies to stay in the black, although Standard Chartered estimates the break-even price for Saudi Arabia is about $88 a barrel. It puts the UAE figure lower, at about $83 a barrel.
Prices for Brent oil have dropped almost 60 per cent to $49 a barrel yesterday from $115 a barrel in June as demand forecasts have declined at a time of increased production, mainly from North America. Meanwhile, concerns about supply disruptions from war-torn producers such as Libya and Iraq have waned.
mkassem@thenational.ae
Follow The National's Business section on Twitter
