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United Arab Emirates Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

Our baseline scenario sees relatively solid growth over the coming quarters, with real GDP forecast to expand 3.9% and 4.0% in 2014 and 2015 respectively.
We expect Dubai to outperform Abu Dhabi, with the former benefitting from increased activity in the trade and tourism sectors, in addition to our expectation that the all-important real estate industry is now set for sustained growth. Credit growth to the private sector will remain relatively slow through 2015 as commercial banks continue to increase provisioning against potential loan losses due to the debt funding cliff.

Major Forecast Changes

On the back of weaker oil prices, we have lowered our forecast for the UAE's fiscal surplus from 4.7% to 3.4% in 2015.

Table Of Contents

United Arab Emirates Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Increasingly Assertive Policies To Continue 8
The UAE's decision to blacklist the Muslim Brotherhood, among others, is symptomatic of the government's increasing domestic and
foreign assertiveness. Given the rise of Islamic State and other Islamist groups, we expect the government to continue forcefully
clamping down on any perceived threats to its rule.
TABLE: Political Outlook 8
Long-Term Political Outlook 9
Three Challenges For The Coming Decade 9
The UAE is one of the more stable Gulf states over the long term, with a small, wealthy population, no history of terrorism and no
sectarian tensions to speak of. That said, it is not without its challenges.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
UAE Economic Activity 14
Weaker Oil Prices Will Not Derail Growth 14
We maintain our bullish outlook on the UAE's economy even in an environment of weaker oil prices. The country has substantial fiscal
buffers to shield growth from lower oil prices and construction projects will continue apace given their political expediency. Consumer
and business sentiment remains positive, underlining our particularly upbeat views on household consumption and fixed investment
over the coming quarters.
TABLE: Economic Activity 14
TABLE: GDP By Expenditure 15
Dubai Economic Activity 16
Plethora Of Reasons For Optimism 16
We hold a bullish outlook on Dubai's economy over the coming years. Accelerating economic activity is evident across a host of sectors as
the emirate benefits from its 'safe-haven' status. Dubai will become an increasingly important growth driver in the UAE as it records the
fastest GDP growth rates on the back of the tourism, real estate and retail sectors. We forecast real GDP growth of 4.4% in 2014 and
4.6% in 2015, following growth of 4.6% in 2013.
TABLE: Dubai - GDP Forecast 17
Abu Dhabi Economic Activity 18
Construction And Real Estate To Become Growth Drivers 18
Abu Dhabi will see a modest slowdown in economic growth over the coming years as gains in the dominant oil sector become harder to
maintain. The non-oil sector will become the key growth driver in the coming years, with construction and real estate the outperformers.
Even with the decline in oil prices, we do not expect spending to be curtailed, as the emirate has substantial fiscal buffers from lower oil
prices. We forecast Abu Dhabi's real GDP growth to reach 3.5% in 2014 and 3.2% in 2015, following 5.2% in 2013.
TABLE: Abu Dhabi - Major Infrastructure Projects 18
TABLE: Abu Dhabi - GDP Forecast 19
Sharjah Economic Activity 20
Growth Pushing Higher, But Falling Behind Larger Neighbours 20
We hold a bullish outlook for the emirate of Sharjah, largely on the back of our positive forecast for Dubai. Sharjah will benefit from rising
housing costs in neighbouring Dubai which should push up demand for the former's own housing sector. In addition, Sharjah's growing
shipping and tourism reinforce our sanguine outlook for the emirate.
TABLE: Sharjah - Major Planned Infrastructure Projects 21
Business Monitor International Ltd www.businessmonitor.com 3
Contents
Islamic Finance Overview 22
New Markets To Emerge, But Impediments To Restrain Growth 22
We maintain our bullish outlook on the global Islamic Banking sector over the coming years. However, we believe that growth rates have
peaked, and highlight numerous obstacles to the sector gaining global precedence.
Oil Exports Overview 25
Mixed Impact From Lower Oil Prices 25
Saudi Arabia, UAE and Kuwait are best placed to absorb a significant decline in oil prices over the coming quarters due to substantial
fiscal buffers, enormous reserves and low budget breakeven prices. Elsewhere, Middle Eastern oil exporters will be hard hit by
sustained weaknesses in oil prices. In Iran, lower oil prices will weaken President Rouhani's position and would lead to political gains for
the conservatives. Over the longer term, oil prices around USD60/bbl pose an existential risk to the Islamic regime.
Chapter 3: 10-Year Forecast 29
The UAE Economy To 2023 29
Greater Caution, Slower Growth 29
After its recent experience of boom and bust, we are forecasting a slower but more sustainable growth trajectory for the UAE over the
next five to 10 years. Consumer spending will remain the key driver of GDP. However, investment and government spending are also
significant, and this relative dependence on domestic demand puts it at some degree of risk.
TABLE: Long-Term Macroeconomic Forecasts 29
Chapter 4: Operational Risk 31
SWOT Analysis 31
Operational Risk Index 31
Operational Risk 32
TABLE: Operational Risk 32
Transport Network 33
TABLE: MENA Transport Network Risk 33
Economic Openness 36
TABLE: MENA - Economic Openness 36
Chapter 5: Key Sectors 39
Infrastructure 39
TABLE: Construction And Infrastructure Industry Data 40
TABLE: Construction And Infrastructure Industry Data 41
Metals 42
TABLE: Steel Production and Consumption 42
TABLE: Steel Production and Consumption 42
TABLE: Aluminium Production and Consumption 43
TABLE: Middle East - Largest Listed Metal Producers 44
Other Key Sectors 45
TABLE: Pharma Sector Key Indicators 45
TABLE: Telecoms Sector Key Indicators 45
TABLE: Defence and Security Sector Key Indicators 45
TABLE: Food and Drink Sector Key Indicators 46
TABLE: Autos Sector Key Indicators 46
TABLE: Freight Key Indicators 46
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Warning Signs Growing 47
Table: Global Assumptions 47
Table: Developed States, Real GDP GrowtH, % 48
Table: BMI VERSUS BLOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 48
Table: Emerging Markets, Real GDP Growth, % 49

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