Recovery in global trade flows combined with improving demand conditions in the GCC markets, especially Saudi Arabia, is expected to benefit the UAE economy this year, according to economists.
“We have seen signs of a pickup in global economic activity in the first quarter of 2017, including in Asia and Europe, which is already being reflected in global trade data. We believe that the UAE will likely be a key beneficiary of this trend given its role as a conduit in both North-South and East-West trade,” said Monica Malik, Chief Economist of Abu Dhabi Commercial Bank (ADCB).
Latest global trade data points to the strengthening in Chinese port throughput volume numbers in early 2017 as part of China’s exports to Africa, Europe, the Indian subcontinent and MENA. A significant share of Chinese shipment to these markets transit through the UAE ports.“We believe that much strengthening in UAE trade activity in 2017 will mostly be driven by global, and to a lesser degree regional, developments. However, the stronger investment activity expected in the UAE (Dubai Expo-led) should support related imports into the country. Moreover, the drag from softening GCC demand should moderate in 2017, especially from Saudi Arabia,” Malik said.
Trade-led growth faces some risks as Saudi economic indicators remain weak, though some have showed signs of stabilising. At the global level, a rise in global trade tensions remains a risk linked to the new US administration’s policy objectives, especially towards China. However, analysts do not anticipate any major global trade disruption, although some disputes are likely crop up from time to time.
Improving data
The UAE trade data for 2016 show that activity remained resilient, supported by the diversified trade base despite the sharp slowdown in GCC economic activity precipitated by low oil prices and fiscal adjustments. Growth in total trade accelerated by 8.8 per cent (in metric tonnes) in the first nine months of 2016, up from 3.4 per cent in 2015.
India was a key driver of stronger trade growth in the first nine months of 2016, whilst exports from China and Australia also saw an increase. In the region, Qatar drove the trade growth (imports from the UAE) likely supported by ongoing momentum in its investment programme. There were also signs of increased trade with Iran with an easing in international sanctions.
Recently published Dubai customs data for 2016 shows a similar increase in total trade (in metric tonnes) to 8.2 per cent, up from 5.7 per cent in 2015.
“In dollar terms, the value of Dubai’s trade contracted 3.7 per cent in 2015 and 0.5 per cent in 2016. We believe that this was largely due to the US dollar strengthening against the currencies of the UAE’s key trading partners, including the Chinese Yuan, Indian rupee and the euro,” said Shailesh Jha, an economist at ADCB.
The euro weakened by about 23 per cent from its mid-2014 level to end-2016. Analysts believe that in constant currency price terms, the value of total trade would have increased over the last two years.
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