Tim Fox, the head of research and the chief economist of Emireates NBD, talks about the outlook for the UAE in the coming year.
What are your forecasts for the UAE economy in 2018? How will that growth vary between Dubai and Abu Dhabi?
The UAE’s economy likely grew 2 per cent in 2017, down from 3 recorded in 2016. The slower growth rate was entirely due to cuts to oil production, in line with Opec’s overall strategy to limit output and reduce excess supply in the global crude market – a strategy that supported the recovery in oil prices last year. The outlook for 2018 is constructive, and we expect growth to accelerate to 3.4 per cent. The oil sector is expected to contribute positively to overall GDP growth next year, as several GCC countries have indicated they will look to boost crude output gradually in the second half next year. Non-oil growth will likely be driven by public sector infrastructure investment rather than consumer demand. Our assumptions are for Dubai to grow by 4.2 per cent and for Abu Dhabi to grow by 2.9 per cent in 2018.
What are your forecasts for oil prices? How will the continued production cut deal impact government revenues?
We are projecting Brent to average US$56 per barrel up from $51 per barrel in 2017. The improvement in oil prices should continue to help boost government revenues next year, seeing budget deficits across the region fall. Higher oil prices in 2017 have helped the UAE’s fiscal position, and the budget deficit probably narrowed to around minus 3.4 per cent of GDP last year, from minus 4.3 per cent in 2016. Indeed, the UAE’s fiscal discipline and a more diversified revenue stream has resulted in it achieving the smallest budget deficit in the GCC in 2017. We expect a further narrowing of the UAE’s budget gap next year to minus 1.4 per cent of GDP, despite a forecast rise in government spending, as a result of both higher oil and non-oil revenue. Even with a stable oil price (averaging $56 per barrel in 2018 and $55 per barrel in 2019), the UAE’s budget should return to surplus in 2019.
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How will the introduction of VAT impact economic growth?
Households are likely to remain cautious when it comes to consumption in view of the new 5 per cent Value Added Tax (VAT), with growth being driven more by infrastructure spending next year. We expect inflation to accelerate to 3.5 per cent on average in 2018 from around 2 per cent in 2017 due to VAT.
Will higher infrastructure spending mainly impact Dubai, or will the economy as a whole benefit?
The 2018 Dubai budget makes provision for a sharp rise in infrastructure spending next year, focused on Expo 2020 projects and transport infrastructure. We also expect increased spending in other emirates to support ongoing projects, to the benefit of the UAE economy as a whole.
How will US interest rate rises impact the UAE economy in 2018, at a time when the country could benefit from looser monetary policy?
Monetary policy looks set to tighten further in 2018 consistent with an expected three 25 basis points interest rate rises by the US Federal Reserve. However, the pattern of recent years has been a compression of the spread between UAE and US interest rates, such that the gap is now the narrowest it has been since 2008. This looks set to continue meaning that the UAE may not see the full extent of the Fed’s tightening being passed on to consumers.
Tim Fox is the head of research and chief economist at Emirates NBD
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Coffee: black death or elixir of life?
It is among the greatest health debates of our time; splashed across newspapers with contradicting headlines - is coffee good for you or not?
Depending on what you read, it is either a cancer-causing, sleep-depriving, stomach ulcer-inducing black death or the secret to long life, cutting the chance of stroke, diabetes and cancer.
The latest research - a study of 8,412 people across the UK who each underwent an MRI heart scan - is intended to put to bed (caffeine allowing) conflicting reports of the pros and cons of consumption.
The study, funded by the British Heart Foundation, contradicted previous findings that it stiffens arteries, putting pressure on the heart and increasing the likelihood of a heart attack or stroke, leading to warnings to cut down.
Numerous studies have recognised the benefits of coffee in cutting oral and esophageal cancer, the risk of a stroke and cirrhosis of the liver.
The benefits are often linked to biologically active compounds including caffeine, flavonoids, lignans, and other polyphenols, which benefit the body. These and othetr coffee compounds regulate genes involved in DNA repair, have anti-inflammatory properties and are associated with lower risk of insulin resistance, which is linked to type-2 diabetes.
But as doctors warn, too much of anything is inadvisable. The British Heart Foundation found the heaviest coffee drinkers in the study were most likely to be men who smoked and drank alcohol regularly.
Excessive amounts of coffee also unsettle the stomach causing or contributing to stomach ulcers. It also stains the teeth over time, hampers absorption of minerals and vitamins like zinc and iron.
It also raises blood pressure, which is largely problematic for people with existing conditions.
So the heaviest drinkers of the black stuff - some in the study had up to 25 cups per day - may want to rein it in.
Rory Reynolds
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