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UAE shows economic stability despite potential impact of Fed moves and US elections

UAE inflation expected to cool to 2.3% this year

Despite an air of uncertainty stemming from the US Presidential Elections and recent US economic indicators demonstrating a decline in leading economic activity metrics, the UAE economy has been holding up with the latest CPI year-over-year figure decreasing from a six-month high of 3.91 per cent to 3.81 per cent at the second half of the year, data show. Meanwhile, the US CPI year-over-year has fallen from 3.4 per cent to 3.3 per cent.

Expecting a sluggish growth of commodity prices, wages, rents, as well as the increase of the UAE dirham due to a strong US dollar that could consequently moderate levels of inflation further, the Central Bank of the UAE’s June 2024 outlook revised the 2024 inflation forecast down from 2.5 per cent to 2.3 per cent.

Razan Hilal, market analyst at Forex.com, said: “With this and a slew of global economic uncertainties, the UAE economy stands resilient showing strong capital adequacy ratios, increasing foreign investments and a diversified economic core.” The country is poised to achieve the CBUAE’s growth projection of 3.9 per cent for 2024 and over 6 per cent in 2025. Current economic developments foster a bullish market sentiment though it stands to be acknowledged that the US elections in November may alter this trajectory, calling for a cautious economic outlook for the UAE.”

Over in the US, key statistics show disinflationary trends such as the down-trending consumer price inflation figures and the PCE — the Fed’s preferred inflation gauge — reaching a three-year low. The ISM Manufacturing PMI has recorded three consecutive drops below expectations while the ISM Services PMI has declined from its 9-month high to levels seen during the 2020 pandemic.

The latest Fed statements however, stress the need to gather further data to confirm these disinflationary trends, cautioning that premature actions such as rate cuts could reignite inflationary pressures. Steadily though, as data aligns with the Fed’s inflation target, the S&P 500 and Nasdaq have reached record highs while the UAE MSCI has shown a positive three-week rebound from annual lows.

Going back to the imminent US presidential elections, much needs to be seen with regards to the current inflation trajectory. Should Donald Trump be re-elected as President, levels of inflation could be skewed off the charts, as noted by Reuters and 16 Nobel-Prize-winning economists.