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United Arab Emirates Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

Lower oil prices will hit growth as government spending and consumer confidence falls. We forecast real GDP growth at 2.3% and 2.4% in 2016 and 2017 respectively, from 3.8% in 2015 Dubai will see an even sharper slowdown as discretionary spending from the rest of the Gulf, and the impact of weaker currencies in China and India take their toll on investment ad spending. Credit growth to the private sector will remain relatively slow through 2016 as commercial banks continue to increase provisioning against potential loan losses due to the debt funding cliff.

Table Of Contents

United Arab Emirates Country Risk Report Q4 2016
Executive Summary.................................................................................................................................. 5
Core Views.......................................................................................................................................................................................5
Key Risks ........................................................................................................................................................................................5
Chapter 1: Economic Outlook.................................................................................................................. 7
SWOT Analysis........................................................................................................................................................... 7
BMI Economic Risk Index.......................................................................................................................................... 7
Economic Growth Outlook ....................................................................................................................................... 8
Growth Slowing, But Non-Oil Sector To Outperform...................................................................................................................8
The UAE's economy is in the midst of an era of much slower growth given lower oil prices, and the resultant cutback in government and
private spending. We expect growth to bottom in 2016 before a slow uptick over the coming years as the non-oil sector becomes the key
growth driver.
TABLE: BRENT PRICE AND UAE REAL GDP GROWTH FORECASTS.................................................................................................................8
GDP By Expenditure Outlook.................................................................................................................................... 9
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS....................................................................................................................................................9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................10
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................10
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................10
Abu Dhabi Economic Growth Outlook................................................................................................................... 11
New Era Of Slower Growth...........................................................................................................................................................11
Abu Dhabi's economy will undergo a structural slowdown in the coming quarters, primarily on the back of lower oil prices. The non-oil
sector will become the key growth driver, with construction the outperformer. We forecast Abu Dhabi's real GDP growth to come in at 2.6
%in 2016 and 2.4% in 2017, a noticeable slowdown from an estimated 3.5% in 2015.
TABLE: ABU DHABI - GDP DATA and FORECASTS................................................................................................................................................12
Dubai Economic Growth Outlook........................................................................................................................... 13
Indicators Pointing To Slowdown, But No Recession...............................................................................................................13
Several leading indicators are pointing to a slowdown in Dubai's economy but we do not think the emirate is headed for a recession.
While external headwinds will remain strong, most notably in oil, the construction sector and export opportunities will prevent a
downturn. Overall, we forecast real GDP growth of 2.2% in 2016 and 2.6% in 2017, following an estimated 4.4% in 2015.
Fiscal Policy And Public Debt Outlook.................................................................................................................. 15
Fiscal Consolidation To Ease......................................................................................................................................................15
The UAE will remain in a fiscal deficit until 2019; however, it easily has enough financial firepower to withstand an era of lower oil prices.
The bulk of fiscal consolidation has already occurred as the country front-loaded subsidy cuts in 2015 and 2016 and we expect oil prices
to head broadly higher in the coming quarters. Overall, we forecast a fiscal deficit of 3.0% in 2016 and 1.6% in 2017.
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................16
Chapter 2: 10-Year Forecast................................................................................................................... 19
The UAE Economy To 2025..................................................................................................................................... 19
Greater Caution, Slower Growth..................................................................................................................................................19
The era of 'lower for longer' oil prices will result in a notable slowdown in economic growth in the UAE. While the country is less directly
exposed to oil as a % of GDP, it will be indirectly affected by a regional slowdown. Consumer spending will remain the key driver of GDP
over the next 10 years, especially with Dubai's hosting of the Expo in 2020.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................19
Chapter 3: Political Outlook................................................................................................................... 23
SWOT Analysis......................................................................................................................................................... 23
BMI Political Risk Index........................................................................................................................................... 23
Domestic Politics .................................................................................................................................................... 24
Few Domestic Political Risks.......................................................................................................................................................24
The UAE is one of the best insulated countries from regional instability and we see few risks to the status quo over the coming years.
However, it is important to note threats facing security in the country, namely the possibility of terrorist attack or domestic opposition,
even though they remain minimal.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................24
Long-Term Political Outlook................................................................................................................................... 25
Stable Outlook But Challenges Remain......................................................................................................................................25
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 4: Operational Risk................................................................................................................... 29
SWOT Analysis......................................................................................................................................................... 29
Operational Risk Index............................................................................................................................................ 29
Operational Risk....................................................................................................................................................... 30
TABLE: OPERATIONAL RISK.................................................................................................................................................................................30
Market Size And Utilities ......................................................................................................................................... 31
TABLE: MIDDLE EAST AND NORTH AFRICA - MARKET SIZE AND UTILITIES RISK ....................................................................................... 31
Labour Costs ........................................................................................................................................................... 35
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE............................................................................................... 35
Chapter 5: BMI Global Macro Outlook................................................................................................... 39
Global Macro Outlook.............................................................................................................................................. 39
EMs Past The Worst, But Structural Problems Persist.............................................................................................................39
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................39
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................40
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................41
TABLE: MACROECONOMIC DATA and FORECASTS..............................................................................................................................................43

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