''Growth will be aided by high public spending and ‘save haven’ status''. Emirates24/7
- High public spending due to strong oil prices will ally with Dubai’s recovery and safe investment to boost the UAE economy by around 3.3 per cent in 2013 despite an expected fall in crude output, according to a key Saudi bank. The country’s real GDP swelled by around 4.9 per cent in 2011 and 4.2 per cent in 2012 and growth will likely remain relatively high this year while its fiscal system will continue to record largely surpluses, Saudi American Bank group (SAMBA) said.
Releasing its monthly bulletin this week, SAMBA said the UAE has benefited from its “safe haven” position given the unrest in much of the broader MENA region. This has encouraged capital flows and helped boost confidence, particularly as it coincided with higher oil prices and a healthy increase in both oil (4.6 percent) and NGL (9.8 percent) production in Abu Dhabi last year, the report said. Together with strong public spending, this helped boost overall UAE real GDP growth to an estimated 4.2 percent in 2012, it added.
“Looking ahead, the push from rising hydrocarbons output will drop off sharply, but sustained improvements in Dubai’s traditional activities and rising public spending should help maintain positive momentum,” SAMBA said.
“This will be aided by the recent recovery in real estate and confidence, although the debt overhang and weak credit growth will remain headwinds. Overall we expect the UAE economy to grow by another 3.3 percent this year.”
A breakdown showed most of the 2013 growth would be in the non-oil sector, which could expand by around 4.1 per cent. Growth in the hydrocarbon sector was put at 1.5 per cent, far below the 2012 growth of 5.9 per cent. In current prices, the report showed the UAE GDP would rise by 4.6 per cent to a record high of about $395.8 billion in 2013 from $378.3 billion in 2012.
The report said it expected an “increasing shift” towards higher capital, including off budget, and social spending as the country responds to both strong revenues and reduced requirements for GRE support. It said overall consolidated spending may not increase by much this year, but the economy should feel the benefits of it more strongly.
This includes progress with the raft of development projects approved by the Abu Dhabi executive council last year as well as a resumption of capital spending in Dubai where the government has recently announced the restart of $1.1 billion worth of previously postponed projects, and plans to develop Mohammed bin Rashid City which will include the world’s largest shopping mall and hotels, according to SAMBA.
“Oil revenues will be impacted by likely production declines and a possible dip in prices, but will remain large and bolstered by revenues from increased external assets, mainly held by the Abu Dhabi Investment Authority,” it said.
“The consolidated fiscal accounts should remain comfortably in surplus, albeit dipping from an estimated 4.7 percent of GDP in 2012 to around 3 percent this year.”