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United Arab Emirates Business Forecast Report Q2 2014

  • March 2014
  • -
  • Business Monitor International
  • -
  • 48 pages

Core Views

Our baseline scenario sees relatively solid growth over the coming quarters, with real GDP forecast to expand 3.9% and 4.1% in 2014 and 2015 respectively. The outlook for Dubai has become more promising relative to that for 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 on the road to recovery. Credit growth to the private sector will remain anaemic through 2014 as commercial banks continue to increase provisioning against potential loan losses due to the debt funding cliff.

Major Forecast Changes

On the back of a stronger-than-expected recovery in Dubai’s residential property sector, we have revised up our 2014 average inflation forecast, and now project the headline print coming in at 2.0% this year.

Key Risks To Outlook

Any attack by Islamist militants would result in a fundamental reappraisal of both the UAE’s, and the wider region, risk profile. A further uptick in tensions between the West and Iran could result in a deterioration in the UAE’s sovereign risk profile given the close proximity and deep trade ties between the two countries. Downside risks to oil prices in 2014 are elevated, which could undermine the UAE’s already fragile macroeconomic recovery.

Table Of Contents

United Arab Emirates Business Forecast Report Q2 2014
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 Ratings 7
Foreign Policy 8
Deal On Hormuz Islands A Positive Step For Region 8
A potential deal between Iran and the UAE over Abu Musa and the Tunbs islands is a very positive step for the region in reducing
geopolitical risks. The deal removes of the few external risks facing the UAE, while also indicating Iran's change towards a more
accommodative foreign policy.
TABLE: Political Table 8
Long-Term Political Outlook 9
Three Challenges For The Coming Decade 9
The UAE is not without its challenges. However, it 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.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity I 14
Bullish Outlook Remains 14
We maintain our bullish outlook on the UAE's economies as a wealth of data points to continued growth. Consumer and business
sentiment remains positive, underlining our particularly bright outlook for household consumption and fixed investment over the coming
Economic Activity II 15
Dubai To Outperform 15
We hold a bullish outlook on Dubai's economy over the coming years as a whole host of sectors possess significant growth prospects.
We expect the emirate to become an increasingly important growth driver in the UAE as the emirate records the fastest GDP growth
rates on the back of the tourism, real estate and retail sectors.
TABLE: GDP Forecast 15
TABLE: Fiscal Data (AEDbn) 16
Economic Activity III 18
Abu Dhabi: Oil Sector To Weigh On Growth 18
We expect Abu Dhabi to see a broad slowdown over the coming years as gains in the crucial oil sector become harder to maintain. We
forecast Abu Dhabi's real GDP growth to reach 3.5% in 2014 and 3.2% in 2015, following an estimated 3.6% in 2013. This forecast
lags our expectations for the UAE as a whole as the non-oil sector will be unable to maintain the former growth reached by the larger oil
TABLE: GDP Forecast 19
TABLE: Fiscal Data (AEDbn) 20
Economic Activity IV 21
Sharjah: Growth Ahead, But Lagging Larger Emirates 21
We maintain our 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.
Monetary Policy 22
Housing To Lead Inflationary Pressures 22
In line with our expectations, inflation continues to tick higher in the UAE, with Dubai leading the price rise. We forecast inflation to
average 2.0% in 2014, up from 1.1 % in 2013. The key driver of inflation in the UAE will be house prices, as the inflationary impact of
food diminishes.
Regional Banking Sector 24
Islamic Banking: New Markets To Emerge 24
We expect 2014 to be a key year for the global Islamic finance industry as several new markets come to the fore. It has been our longheld
view that rather than becoming an integrated global financial system, Islamic banking will see the creation of regional hubs. Even
with this slightly fragmented outlook, we still expect significant growth for the sector.
TABLE: Islamic Bonds and Loans (2013) 24
Chapter 3: 10-Year Forecast 27
The UAE Economy To 2023 27
Greater Caution, Slower Growth 27
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.
TABLE: Long-Term Macroeconomic Forecasts 27
Chapter 4: Business Environment 29
SWOT Analysis 29
BMI Business Environment Risk Ratings 29
Business Environment Outlook 30
Institutions 30
Infrastructure 31
Market Orientation 33
Operational Risk 35
Chapter 5: Key Sectors 37
Autos 37
TABLE: Automotive Sales, 2010-2017 38
TABLE: Auto Trade 2010-2017 39
Food and Drink 40
TABLE: Food Consumptio n Indicato rs - Histo rical Data and Forecasts , 2011-2018 41
TABLE: Mass Groce ry Retail Sales - Histo rical Data and Forecasts , 2011-2018 43
Other Key Sectors 45
table: Oil and Gas Sector Key Indicators 45
table: Telecoms Sector Key Indicators 45
table : Pha rma Secto r Key Indicato rs 46
table: Defence and Security Sector Key Indicators 46
table: Infrastructure Sector Key Indicators 46
TABLE: Freight Key Indicato rs 46
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Global Growth Optimism Turning To Disappointment 47
Table: Global Assumptions 47
Table : Developed States , Real GDP Growt H, % 48
Table : Eme rgi ng Markets , Real GDP Growth , % 49

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