Weaker industrial output in Abu Dhabi signals slowing economic growth

Manufacturing will likely slow as incomes rise more slowly, and demand becomes weaker, one analyst said. Delores Johnson / The National

Industrial production in Abu Dhabi fell in the first three months of the year, in the latest sign that economic growth in the emirate is slowing.

The industrial production index dipped 0.5 per cent in the first quarter from the same period last year. It was led by weaker activities in transport equipment and paper manufacturing, which both shrank more than 60 per cent.

The index is a measure of manufacturing output that Statistics Centre Abu Dhabi publishes quarterly.

The value of construction projects in Abu Dhabi awarded in the first three months fell significantly from the previous quarter, according to data published earlier this year by Abu Dhabi Commercial Bank.

But the bank said that US$25 billion of new projects were set to be awarded in the second quarter, up from the $8bn confirmed for the first quarter.

That indicates that project awards can vary significantly over time, and that it is probably too soon to determine whether infrastructure spending will decelerate.

“Over the coming years, the government probably won’t push ahead with projects as fast as it has done,” said Jason Tuvey, an emerging markets economist at Capital Economics.

“They will be more prudent and put less priority on some projects more than others. As projects are delayed, this will slow growth in the non-oil economy.

Mr Tuvey said the emirate was not under massive fiscal pressure because of its significant financial reserves.

“But over a longer-term horizon, there is a good argument to cut energy subsidies instead of infrastructure spending, because higher domestic oil consumption eats into earnings from oil that could otherwise be re-exported,” he said.

“Manufacturing is part of the non-oil sector, and it will likely slow as incomes rise more slowly, and demand becomes weaker.”

Sultan Al Mansouri, the Minister of Economy, said last month that the UAE would not cut core infrastructure spending over the next five years.

“When it comes to infrastructure such as hospitals, schools, roads, wherever that is needed, we have the capacity to finance it,” he said. “None of that is going to be affected in the next four to five years.”

The IMF last month downgraded the UAE’s growth forecast for the third time in six months. It now expects that the UAE’s economy will grow 3 per cent this year, down from its projection last year of 4.5 per cent growth.

That was driven by an expected fall in non-oil growth to 3.4 per cent this year, down from 5.2 per cent last year and 5.4 per cent in 2013.

“Growth in the Gulf will slow over the coming years, particularly as fiscal policy becomes less supportive,” said Mr Tuvey.

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