The UAE is expected to lead economic growth in the Arabian Gulf this year amid higher spending that will be spurred on by recovering oil prices, according to the latest research from the National Bank of Abu Dhabi (NBAD).
While the region is heavily dependent on oil, the UAE has been among the countries in the region that have done a better job of diversifying its economy and coming up with new streams of revenue, according to the bank’s annual global investment outlook.
“The UAE Government was the first in the GCC to implement fiscal measures such as subsidy reduction, municipality fee increases and alternative sources to fund government spending,” NBAD said.
Since the price of oil began its descent in 2014, governments in the region have reduced energy subsidies, cut spending and raised debt in international markets to prevent deficits from spiralling out of control.
NBAD’s promising views on the UAE echoes what others have been saying, as well as hard data. The IMF said in October that the UAE is projected to grow at 2.3 per cent in 2016 and 2.5 per cent in 2017, while Saudi Arabia, the region’s biggest economy and the one most reliant on oil, is expected to experience economic growth of 0.4 per cent in 2017 from 1.2 per cent in 2016.
The UAE had strong non-oil private-sector growth last month, according to survey data from Emirates NBD.
Emirates NBD’s purchasing managers’ index (PMI) for the UAE rose to 55 in December from 54.2 in November, the bank said earlier this month.
A reading above 50 indicates that the non-oil economy is growing, while a reading below 50 suggests that it is contracting. Khatija Haque, Emirates NBD’s head of Mena research, said that the rising PMI score indicated “a solid expansion in the non-oil private sector” during the past quarter.
UAE-based business leaders reported rising output in December as orders increased, amid a return to growth of new export business.
As a result of the signs of economic improvement, NBAD is bullish about the prospects of UAE equities, especially given that listed companies trade at discount to emerging market stocks valuation-wise. The MSCI UAE index, a measure of stocks traded in both Abu Dhabi and Dubai, trades at 12.3 times earnings versus 15.8 for the broader MSCI Emerging Market Index.
The relatively attractive valuation comes even after the MSCI UAE index rose by 9 per cent last year by and 4.3 per cent in the year-to-date. In the same time frame, the MSCI Emerging Market Index rose by 3.6 per cent and 8.5 per cent.
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