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Expo 2020 Dubai to boost UAE economy as Opec cuts impact Saudi

New survey says global economic confidence "at an all-time low" as market protectionalism increases and slowdown looms

Expo 2020 Dubai is driving the UAE economy's growth [representational image].
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Expo 2020 Dubai is driving the UAE economy's growth [representational image].

Confidence in the Middle East’s economy grew in Q4 2018 even as overall regional sentiment weakened amid oil price reductions, and global economic confidence hit an all-time low.

The Association of Chartered Certified Accounts (ACCA) and the Institute of Management Accountants (IMA) revealed these findings from their jointly implemented Global Economic Conditions Survey (GECS), which attracted 3,773 responses from their members around the world. Of the total number, 302 respondents are chief financial officers, both organisations said. 

There remains the risk of an escalation in protectionism, predominantly driven by a trade war between the US and China.

According to the survey’s findings, the overall negative confidence measure in the Middle East “is fairly well correlated with oil prices”, and is reflective of the global economic sentiment.

The UAE’s economy was seen as being likely to perform “relatively strongly” over the next 12 months, even though oil price volatility may be observed during the period. However, as the report explained, the country’s strong fundamentals ensure that its fiscal policy will not require a dramatic tightening. 

Significantly, the UAE’s spending on infrastructure projects, particularly in support of Expo 2020 Dubai, “will underpin growth” in the year to come. 

“Indeed, it is notable that despite a dip in overall confidence, there was a sharp improvement in the government spending [index],” GECS stated. 

Commenting on the UAE market in an interview with state news agency, Wam, Hanadi Khalife, director for Middle East, Africa, 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. 

“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 Dubai. 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, according to the Wam report published late in January 2019.

Meanwhile, Saudi Arabia’s economy “is likely to weaken” in the next 12 months, according to the survey. Production cuts by Organization of the Petroleum Exporting Countries (Opec) are seen as being a critical factor for the kingdom’s economy, where monetary policy is “likely to be tightened further”.

“The fall in oil prices is likely to lead to a decline in government revenues, and government spending will need to be cut to offset lower revenues,” GECS continued. 

Non-oil earnings of $33.9bn contributed 12% to Saudi Arabia’s total revenue in 2014. This number grew by 32% to $76.5bn in 2018, with the surge “largely attributed to the continued implementation of economic reforms”, value-added tax (VAT), and energy price reforms, Saudi Arabia’s Minister of Finance, Mohammed Al-Jadaan, said in December 2018.

There remains the risk of an escalation in protectionism, predominantly driven by a trade war between the US and China.

In 2019, overall growth in the global economy is expected to “fall short of recent years”, when it has averaged 3.5%. The US and Eurozone are both expected to slow down this year, and the outlook for the UK is “extremely uncertain”, in part due to Brexit. 

Emerging markets, especially those with a greater export dependence, are vulnerable to a slowdown in the wider global economy, the survey stated, adding: “There remains the risk of an escalation in protectionism, predominantly driven by a trade war between the US and China. Other risks include Chinese bank failures, a ‘no-deal’ Brexit, and a prolonged shutdown of the US Government. 

“With China slowing too in the near term, the world’s largest economies are losing momentum. Elsewhere, there is the prospect of faster growth, in some cases generated by economic reforms, particularly in Latin America and Africa. We look for global growth to hold up above 3% this year,” GECS added.

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