Non-oil growth in the UAE will remain resilient in 2017 while in the medium term, while economic activity will strengthen on the back of firmer oil prices and a rebound in global trade, the World Bank said on Thursday.
While an Opec-mandated oil production cut restricts oil growth, firmer oil prices, a rebound in global trade and easing of fiscal consolidation are expected to strengthen economic activity in the medium term, especially as investments ramp up ahead Expo 2020 Dubai, the World Bank said in its ‘UAE Economic Outlook – October 2017’.
However, it warned that the rebound is faced with several downside risks, including lower oil prices and tighter global financial conditions.
On Tuesday, the International Monetary Fund said on that the UAE economy would grow 3.4 per cent in 2018, at the second-fastest growth rate in the GCC, while an upswing in the world economy would likely gather pace into next year. The fund said the improved outlook for the UAE follows a predicted 1.3 per cent growth in 2017 as low oil prices continued to impact all regional economies.
“Fuel exporters are particularly hard hit by the protracted adjustment to lower commodity revenues,” the IMF said in its World Economic Outlook for October.
The World Bank report said overall, real GDP growth is estimated to further moderate to 1.4 per cent in 2017, down from three per cent in 2016.
Hydrocarbon GDP growth is estimated to contract by 2.9 per cent in 2017 from 3.8 per cent in 2016 in compliance with the Opec agreement to cut supply. The non-oil sector is estimated to grow by 3.3 per cent in 2017, reflecting higher public investment and a pickup in global trade.
The average rate of inflation in the UAE increased slightly to 2.2 per cent in 2017 from 1.6 per cent in 2016 partly reflecting utility and gasoline price adjustments, and higher imported inflation, in addition to an uptick in activity. The current account surplus is expected to improve to 2.6 per cent of GDP this year mainly owing to rising non-oil exports.
Economic prospects in the Middle East and North Africa region are projected to improve in 2018 and 2019 with growth exceeding three per cent despite a growth slowdown in 2017 at 2.1 per cent, according to World Bank’s Mena Economic Monitor.
The bank said both the Mena’s oil exporters and oil importers will benefit from a steady improvement in global growth, increased trade with Europe and Asia, more stable commodity markets, especially oil, and reforms undertaken in some of the countries in the region.
“The short-term prospects of economic recovery are contingent on several factors, including the uncertainty arising from prolonged conflicts in the region and the massive numbers of forcibly displaced persons” said Lili Mottaghi, World Bank economist and the report’s lead author. “Mena countries need to adopt the right mix of policies to grow faster, including reforms to diversify the economies and strengthen the business environment to unleash the potential of the private sector.”
“Because the legacy of conflicts tend to lower growth prospects, both the private and public sector will need to be more agile and combine their efforts to chart a new path,” said Rabah Arezki, World Bank Mena chief economist.