UAE to see moderate growth in 2017 amid oil cuts: NBK

UAE’s real gross domestic product (GDP) is expected to moderate to 2.2 percent in 2017 from an estimated 2.4 percent last year, due to lower crude production, in compliance with OPEC agreement to cut supply, National Bank of Kuwait (NBK) said in a report.

OPEC and a number of non-OPEC nations agreed to extend the output cut to at least the end of Q1 2018, instead of June this year. As a result, UAE’s real oil GDP is expected to rise 2.6 percent in 2018, as production will gradually return to its pre-deal levels.

UAE’s real non-oil GDP is likely to see 3.6 percent growth in 2017, and 4.5 percent in 2018.

The UAE’s Purchasing Managers’ Index (PMI), a good gauge of non-oil sector growth, showed that non-oil sector activity is likely to remain sold in the near to-medium-term, the report said. Although the headline slipped in May, it remained solid at 54.3 as the local economy remained stable, offsetting some softness in global demand. 

“Much of the non-oil economy’s momentum continued to be fueled by Dubai’s hospitality and construction sectors,” NBK said in the report.

“The number of passengers passing through Dubai International Airport remains near record highs. In April this year, this number stood a 7.6 million passengers, up a healthy 9.2% year-on-year.” 

Inflation in the consumer price index (CPI) had retreated recently to 2.2 percent YoY in April from 3.0 percent YoY in March, as housing inflation (which weighs more heavily in the index) continued to trend lower and as food costs declined, the review said.

NBK expects the CPI to gradually edge higher in H2 2017 to around 2.5 percent for the year, as a recovery in oil prices pushes up inflation in the transport segment and housing inflation gathers pace, in addition to a planned tax hike for selected consumer goods in Q4 this year.

UAE’s fiscal deficit is likely to narrow to 1.8 percent in 2017 and surplus slightly by 0.6 percent in 2018, with global oil markets recovering and a more prudent fiscal policy in place.

Thanks to the UAE government’s abundant financial reserves that hover above 200% of GDP, fiscal deficits have been manageable, helping both Dubai and Abu Dhabi maintain high levels of public spending, particularly on infrastructure projects, the report said.

“Moody’s recently affirmed the UAE’s Aa2 credit rating and upgraded its outlook from negative to stable, citing an effective public policy response to the lower oil price environment and improved economic growth prospects.” NBK said.

The surplus in the current account balance is expected to rise to 5.1 percent in 2017 from a six-year low of around 4.8 percent of GDP in 2016, as oil export earnings recover and non-oil export growth gathers pace.