Drop in oil demand hits trade balance

The UAE's trade deficit is estimated to have widened to US$14.1 billion (Dh51.79bn) in the first seven months of the year as international demand for oil ebbed. Rising consumer demand for imports also contributed to the increased trade deficit, according to estimates by Kuwait China Investment Company (KCIC), an investment vehicle established by the sovereign wealth fund Kuwait Investment Authority.

It estimated exports for the first seven months of the year to have reached $79.5bn, lagging behind imports of $93.6bn. For last month, KCIC estimated imports to have outpaced exports by $3.4bn. Although the UAE relies on revenue from oil it exports to Asia and other parts of the world, it is also dependent on imported goods from the Far East and Europe. "Imports are increasing as consumption in the UAE is going up," said Mert Yildiz, an economist at KCIC research department. "The biggest UAE exports are oil and petrochemicals and, as global demand for these has slowed, the trade deficit has widened."

The UAE's trade deficit hit a record monthly high of $4.1bn in December last year as demand for oil fell, eroding export volumes, and the domestic economy expanded at a faster rate. Depressed domestic demand and an increasing export rate in the second half meant the UAE ran a trade surplus last year, KCIC said. Nevertheless, the Emirates still had inflows of money from tourism and foreign investment, said Mr Yildiz.

"Capital accounts inflows including foreign spending and investment more than compensate a deficit in the current account," he said. He added that for countries with a large trade deficit and no money inflow, trade deficits tended to become problematic. [e-mail]