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UAE’s real GDP, surplus set to rebound

VAT is not expected to have a significant impact on growth

The UAE’s real GDP growth is expected to bounce back from 2.9 per cent to 3.2 per cent as value-added tax is not expected to have a significant impact on growth since its implementation in January 2018.

The country’s current account surplus is expected to improve by 2.6 per cent in 2017, mainly due to rising non-oil exports, and reach 3.8 per cent by 2022, complimented by the growth of non-oil exports and tourism, according to ENBD’s GCC Bond Markets report.

Over 23 Expo 2020-related construction contracts worth more than $2.5 billion are expected to be awarded by the end of this year. The new contracts are on top of those $2.94 billion worth of construction contracts and $111 million worth of non-construction contracts awarded in 2017.

Dubai government entities have also awarded contracts and completed works related to roads, Metro and electricity infrastructure since the start of 2018.

“The country is set to be a top performing economy again in 2018. The financial sector has demonstrated strong growth and profitability. With the commitment on the currency pegs to the US dollar, the sector has benefitted from the rate hikes implemented by the US Federal Reserve, as interest rates have been rising in parallel,” said analysts Syed Yahya Sultan, head of fixed income strategy; and Muna Alawadhi, fixed income analyst, both of CIO Office, Wealth Management at ENBD.

“The current positive developments of oil are thus only an additional cyclical support for the economy and sentiment. However, the pickup was not enough to leave infrastructure projects in the UAE immune. It experienced a slowdown similar to global trade, which dropped from 3.8 per cent in 2015 to 2 per cent in 2016,” said the report.

The report pointed out that though the UAE has adapted well to its surroundings, its financial conditions have tightened, with higher interest rates, as well as some pressure on stock and property prices.

Debt declined by five percentage points of GDP, down to 24.7 per cent, due to repayments of bonds and syndicated loans by government entities. This includes both Abu Dhabi’s Eurobond issuance of $5 billion as well as Sharjah’s sukuk issuance of $0.5 billion in 2016.

“Altogether, economic activity is expected to strengthen, as the non-oil sector picked up 3.3 per cent in 2017 and is expected to remain above three per cent over the medium term, which reflects the increase in domestic public investment, such as Expo 2020, as well as growth in global trade,” said the report.

With oil prices rising, the rebound is growth is evident across the GCC as member states adapt to changing global economic conditions. “However, challenges remain, such as relatively high local unemployment in certain sovereign nations, leading to a heavy reliance on expatriate workers. Deeper private sector involvement is and must keep on being stimulated, as the public sector continues to further improve efficiency.”

Overall, the GCC’s GDP is expected to grow to 2.4 per cent this year, up from 0.1 per cent last year. The trend is only expected to accelerate in 2019, as Opec phases out its output cut, providing a boost to oil exporting countries and the region, said the report.

The successful and smooth implementation of VAT by some GCC nations is emblematic of the current transformation. After having overcome the difficulties of low oil prices, the region is taking precautions. Policymakers have focused on fiscal consolidation with some visible success on their financial situation and budgetary framework, said the report.

Source : Khaleej Times

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