United Arab Emirates: Growth dips in 2016 as fiscal austerity bites
June 5, 2017
The UAE’s economy slowed last year according to recently released figures from the Federal Competitiveness and Statistics Authority (FCSA), in line with other countries across the Middle East. Growth dipped from 3.8% in 2015 to 3.0% in 2016, the slowest expansion since 2010, dragged down by fiscal austerity measures and low oil prices.
Private consumption rebounded last year following a sharp contraction in 2015 (2016: +11.7% year-on-year; 2015: -13.1% yoy), likely due in part to subdued inflationary pressures boosting households’ purchasing power. Public spending fell for the second consecutive year, as the government continued to exercise fiscal restraint in the face of low oil prices and a consequent revenue shortfall (2016: -1.2% yoy; 2015: -0.3% yoy). Fixed investment growth was dampened by a fall in public investment, as the government tightened the purse strings with respect to both capital and current spending (2016: +2.3% yoy; 2015. +4.3% yoy).
Previously released external sector figures from the Central Bank show that exports dipped slightly last year, likely dragged down by the strong dirham (2016: -0.6% yoy; 2015: -12.4% yoy). Over the same period, imports rose (2016: +2.9% yoy; 2015: -4.6% yoy), with the external sector’s net contribution to growth deteriorating as a result.
This year is likely to see a further slowdown in growth, as oil production will be curtailed by OPEC production cuts, with the cartel recently announcing a nine-month extension to the deal. Looking further ahead, oil production should rise from 2018 onwards due to investment in oilfields, which coupled with higher prices will give the hydrocarbon sector a boost. At the same time, public infrastructure investment will ramp up considerably ahead of the 2020 World Expo in Dubai, which should give domestic demand a shot in the arm.
Author: Oliver Reynolds, Economist