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United Arab Emirates Economic Outlook- Fall 2016

As low oil prices have persisted, the economy has slowed further, with growth projected at 2.3% in 2016 (down from 4.7% in 2013). Despite significant reforms, the fiscal deficit has widened and external balances deteriorated. However as projected oil prices trend upwards and production rises, growth is expected to pick up in the medium term. Tight fiscal policy will hold back government expenditure growth while simultaneously developing new revenue sources, thereby reversing the fiscal deficit.

Outlook
 
Growth is expected to slowly recover, reaching 3% in 2018.  Oil production is expected to rise due to investments in oilfield development. Non-oil growth is also projected to rebound (i) as the expected improvement in oil prices and its positive effects on confidence and financial conditions dampen the effects of fiscal consolidation; (ii) as megaproject implementation ramps up ahead of Dubai’s hosting of Expo 2020; and (iii) as the lifting of sanctions on Iran translates into increased trade. Fiscal and external balances are expected to improve over the medium term; with a reversal of the fiscal deficit expected and a rebound in the current account surplus to 3.2% of GDP by 2018.
Progress in economic diversification, large buffers and safe-haven status have strengthened the resilience of the economy. The UAE is expected to implement a GCC-wide value added tax (VAT) by 2018, and is considering increasing excise taxes and introducing corporate tax. Despite pressures key investment areas will be maintained, as evident by the recently announced nuclear energy project. Abu Dhabi’s aerospace manufacturing has secured contracts with Airbus and Boeing, underscoring its commitment to diversification. New bankruptcy and investment laws are also being prepared with a potential positive impact on investment. In addition, as anxiety looms over the impact of UK’s decision to leave the EU, according to a survey of financial investment professionals Dubai’s competitiveness as a financial hub is not expected to be affected.

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