Dubai: The economic growth of the UAE’s non-oil sector is expected to see increased momentum in 2017 on the back of Expo 2020-related government spending in Dubai and relatively modest fiscal consolidation measures in Abu Dhabi aimed at boosting overall spending, according to Standard Chartered economists.
“The expected pick-up in non-oil growth next year is supported by a broad range of drivers in both Abu Dhabi and Dubai. For Abu Dhabi, the front-loading of fiscal adjustment in 2015-16 implies less need for fiscal consolidation next year. As such, we expect the government to increase social infrastructure spending, boosting consumption and investment,” said Dima Jardaneh, head of Economic Research Mena at Standard Chartered.
Economists expect the Dubai government to maintain an expansionary stance next year, with construction and development related to Expo 2020 picking up speed.Downside risks to growth could materialise from a further weakening of the global environment and difficulty in securing financing for infrastructure projects.
Economic activity in Dubai slowed in the first half of 2016 on lower aggregate demand domestically and externally.
“We expect non-oil growth to pick up to 4 per cent in 2017. Factoring in a decline in oil production of 139,000 barrels per day in the first half of 2017, in line with the Opec agreement reached on November 30, we estimate that oil GDP will contract by 2.3 per cent in 2017,” Jardaneh said.
With the UAE’s oil production averaging 2.94 million barrels per day, overall GDP growth for 2017 is expected slow down to 2.1 per cent from 3 per cent for 2016.
Residential real estate prices in Dubai have continued to stabilise, with sales prices rising 0.7 per cent year-on-year in October 2016 and rental prices declining 5.1 per cent year-on-year.
Analysts expect real estate prices to decline further in 2017, as around 30,000 units are expected to come onto the market next year.
Inflation dropped sharply in August to 0.6 per cent year-on-year from 1.8 per cent in July. The decline was mostly on account of the 12 per cent drop in transport costs.
Inflation averaged 1.7 per cent for the January-August period, resulting in a lower average inflation rate of 1.8 per cent for the year.
“Extrapolating from this, we lower our forecast for 2017 to 3 per cent — from [the] earlier forecast of 3.5 per cent prior and for 2018 to 3.5 per cent from [the] 3.8 per cent projected earlier. The key factors contributing to higher inflation are cost-push factors, including higher gasoline prices and water and electricity tariffs,” Jardaneh said.
For Dubai, the competitiveness of the hospitability and tourism services may come under further pressure in 2017 if the dollar continues to strengthen.
Reforms to continue
The Abu Dhabi government is continuing to raise water and electricity tariffs. Amended tariffs that reflect the actual cost of supply will be effective from January 1, 2017. The tariff schedule will vary among nationals and expatriates, as well as industrial and commercial users.
The government has also signalled its readiness to resume spending on public infrastructure, with an announcement that 40 development projects are to be implemented in Abu Dhabi, including housing for nationals and road links.
The federal budget has earmarked Dh248 billion for 2017-21, with Dh48.7 billion allocated for 2017. This is the first time that the UAE has announced a five-year budget plan, which bodes well for longer-term planning.
Federal budget funds are mostly slated for social services and government affairs, as well as federal projects. The federal budget accounts for about 16 per cent of consolidated UAE budget expenditures.
“We lower our fiscal surplus forecast for 2017 to 1.5 per cent of GDP from [an] earlier forecast of 2.8 per cent, and [the] account surplus to 4.1 per cent of GDP from a prior forecast of 5.2 per cent to reflect lower oil revenues in view of the oil production cut. We also lower our fiscal surplus forecast for 2018 to 3.3 per cent from 5.3 per cent, and trim our 2018 current account surplus to 4.9 per cent from the earlier forecast of 6.7 per cent,” she said.
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