UAE economy to fare well on higher infrastructure spend

The UAE economy fared better in the last quarter of 2018 as compared to previous year and will perform better in 2019 as well on the back of higher infrastructure spending, less monetary tightening and other non-oil activities, professionals and business executives said.
A new survey conducted by the Association of Chartered Certified Accountants and Institute of Management Accountants has shown that overall confidence was higher in fourth-quarter of 2018, recovering some of the ground lost in the previous quarter.
"Volatility in oil prices may be a drag on the economy but strong fundamentals mean fiscal policy will not need to be tightened dramatically. In addition, the US dollar has lost upward momentum as interest rate expectations have fallen, limiting the degree of additional monetary tightening by the GCC economies. I believes there is further optimism with the economy likely to perform relatively strongly over the next year or so," said Lindsay Degouve de Nuncques, head of ACCA Middle East. "In addition, increased spending on infrastructure projects, including for the World Expo in 2020, will underpin growth. Indeed, it is notable there was a sharp improvement in the government-spending sub-component, while the new orders sub-component was stable," she added.
Dubai Government announced its 2019 earlier this month, allocated a moderate amount of Dh9.2 billion for this year as against Dh11.9 billion in the previous year.
Monica Malik, chief economist, Abu Dhabi Commercial Bank, noted that the budget statement reflected the fact that a number of projects associated with Expo 2020 have been completed. "Nonetheless, we still expect to see investment activity strengthening in 2019."
"We expect a pick-up in expenditure growth in Abu Dhabi linked to the support package Dh50 billion over the next three years in various measures," she said.
Meanwhile, the 2019 federal budget saw planned spending growth accelerating to 17.3 per cent in 2019 from 5.5 per cent planned growth for 2018 whilst Sharjah also announced an expansionary budget with government spending set to rise by 10% from the 2018 budget.
Most of the global financial institutions such as International Monetary Fund, World Bank, The Institute of International Finance have predicted higher growth forecast for the UAE in 2019 as against 2018.
Hanadi Khalife, director, MEA and India operations at IMA, said the results of the survey show increasing business confidence in the Middle East which has been stimulated by UAE's spending on its infrastructure. This falls in line with the objectives set by the government to achieve the UAE Vision 2021. "The real GDP growth is expected to accelerate in the UAE over the next few years, affected by the non-stop construction activities ahead of Expo 2020. Estimates show that infrastructure investments are playing a key role in driving the growth of the local economy that is increasingly relying on non-oil activities," Khalife added.
Confidence in the Middle East improved in the final quarter of the year but remains negative, said the survey.
"Not surprisingly, this confidence measure is fairly well correlated with oil prices and it is unusual for confidence to increase when oil prices fall, as occurred in the fourth quarter. But confidence is still low, reflecting the level of oil prices which threaten government and export revenues," revealed the survey. However, capital expenditure across the region is forecast to remain negative but new orders likely to rise, which points to some improvement early in 2019. - waheedabbas@khaleejtimes.com