UAE's diversified economy weathers drop in oil price

Customers queue for orders at a fast-food outlet in Dubai. Key service sectors such as tourism and aviation are continuing to see growth. - Bloomberg

The UAE's more diversified economy and strong foreign reserve position makes it one of the best-positioned countries to withstand the low oil price environment, according to a latest research note.
Key service sectors such as tourism and aviation are continuing to see growth, although slowly, says GCC Economic Update issued by Abu Dhabi Commercial Bank.
"There are initial indications that Dubai's investment programme has gathered pace into 2016, with a number of projects awarded including ports, hotels, leisure/tourism and real estate," writes Dr Monica Malik, chief economist at Abu Dhabi Commercial Bank.
There are also signs that a number of transportation and other projects are progressing towards the awarding stage, including the extension of the Dubai Metro to the Expo 2020 site. This project should support the investment outlook, potentially resulting in a smaller fall in project awards in 2016 than in 2015, she said.
Dubai has announced an expansionary budget for 2016, with investment spending increasing by around 20.6 per cent.
"Moreover, we expect a substantially softer landing for the economy than in 2009, when the correction of asset price bubbles resulted in a contraction in real non-oil GDP growth. Nevertheless, we still see economic challenges increasing in 2016 with the further fall in the oil price," she notes.
The chief economist forecast real non-oil GDP growth to slow to 2.5 per cent in 2016, down from three per cent in 2015 and below the 2011-14 average of 5.2 per cent. The UAE will not be immune to the slowdown in wider GCC non-oil GDP growth being affected via consumption/tourism, capital flows, and trade or the lacklustre global growth backdrop.
Other headwinds include the continued correction in Dubai property prices, which were down -11 per cent year-on-year in December 2015, according to Reidin data.
Abu Dhabi residential prices fell by a more moderate -0.8 per cent year-on-year in December 2015.
She expected Dubai property prices to fall 10 per cent in 2016.
The strong US dollar is a key drag on the non-oil sector including tourism and real estate. "While we see a deceleration in private consumption due to the strong US dollar, the impact of the lower oil price on confidence, and job losses in certain sectors," she said.
The UAE is the only GCC country for which she forecast inflation to moderate in 2016. Lower fuel prices and a more gradual fiscal reform programme should limit the drag on growth. Dr Monica saw weighted-average government spending in the GCC falling by some 7.2 per cent in 2016. All of the budgets announced thus far have been contractionary with the exception of Dubai's, she said.
However, she expected overall consolidated expenditure in the UAE contracting in 2016, largely on the back of lower spending by Abu Dhabi. The UAE's federal budget, which accounts for less than 15 per cent of total expenditure, has spending falling by one per cent in 2016.
- haseeb@khaleejtimes.com