Improvements in government spending, employment and capital expenditure sub-components also highlighted
UAE - Confidence improved in the UAE in the first quarter of 2018 as economic buoyancy across the Middle East rebounded strongly to its highest level since second quarter 2015, professional accountants said.
Confidence is at a fairly elevated level by recent standards, according to the latest Global Economic Conditions Survey from the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants.
"The pick-up in confidence in the UAE is due in part to the fading impact of last year's Opec production cuts. Other reasons include an increase in non-oil exports on the back of strong global growth, extra spending ahead of Expo 2020 Dubai and a less restrictive fiscal policy," the survey said.
Lindsay Degouve de Nuncques, head of ACCA Middle East, said the UAE in particular has enjoyed an increase in non-oil exports and increased spending ahead of the 2020 World Expo. "The rise in confidence is encouraging given the country introduced VAT this year, providing further economic stimulus," she added.
Analysts at ACCA noted that with fiscal policy being eased, it was no surprise that the government spending sub-component remained high in the UAE.
"There were also modest improvements in the employment and capital expenditure sub-components," they said.
For a confidence rebound in the Middle East, a number of factors are responsible, most notably the recovery in oil prices, which by mid-April had increased to just over $70 per barrel, analysts said. "This has led to increased export revenues and boosted government coffers, which has reduced the need for further fiscal austerity." However, they noted that the region continue to face headwinds. "A key drag on growth over the next couple of years is likely to be tighter monetary policy. Most countries in the region have currency pegs to the US dollar, which means they are forced to adopt the same monetary policy as the US Fed."
Interest rates in the US have already increased once this year, and are likely to rise a further three times before the end of 2018. Also the possibility of a US-China trade war has depressed the price of oil and would have a negative impact on this region, analysts said.
In addition to the uncertain geopolitical situation concerning Syria and Iran, the main downside risk to the region is the possibility of a US-China trade war, which would depress the price of oil.
Hanadi Khalife, director for MEA and India Operations at the Institute of Management Accountants, said the results of the report show positive trends for the Middle East region, where diversifying the economy is a major focus for many of the key markets including the UAE and Saudi Arabia. "Regional governments are investing heavily in driving innovation, new technology and creating job opportunities for current and future generations."
On the global outlook, Narayanan Vaidyanathan, head of business insights at the ACCA said: "The outlook for the global economy is as good as it has been for some time," adding that "the continued rising confidence, led by North America, is also benefitting other key trading economies such as Africa and South Asia."