Pick-up expected in 2013-14
We expect average growth of around 3.7% in 2013-14, which is up from the estimated figure of 3.3% in 2012. This will be driven by a mixture of domestic and external factors: the ongoing recovery of key sectors (such as financial services and construction), accommodating fiscal policy, an increase in oil output and generally brighter trade prospects.
Dubai, which accounts for 75% of the UAE’s non-oil trade, is expected to benefit the most from more favorable external trends. It is likely to outpace Abu Dhabi in 2013. Growth in Abu Dhabi will remain respectable, but will be tempered by lower regional oil prices, which we see dipping below US$100pb in H2 2013, compared with US$109pb in 2012.
In the medium term, a significant boost to the UAE’s diversification efforts could be provided if the country is able to secure prized emerging market status in the Morgan Stanley Capital International (MSCI) grading system. Such status would bring greater flows of inward investment. However, current company law, which caps foreign ownership outside of designated “free zones” at 49%, is likely to preclude such an upgrade. In our opinion, any reform is likely to be piecemeal. So this is likely to be an area to monitor for some time to come.
Real GDP growth
Source: Oxford Economics
Government budget balance
Source: Oxford Economics
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