The International Monetary Fund cut its 2015 UAE growth forecast yesterday, citing the impact of lower oil prices on Abu Dhabi’s energy sector.
The UAE’s economy will grow by 3.5 per cent – 1.0 percentage point below the IMF’s October estimate.
Abu Dhabi’s economy is set to grow by 3 per cent this year, as its oil sector slows. The emirate’s non-oil economy is set to grow 5.5 per cent this year. Dubai’s economy will grow by 4.5 per cent this year and 4.6 per cent next year, the IMF projects.
The IMF revised its predictions for all GCC countries down 1.0 percentage point. It projects growth of 3.4 per cent for the region this year.
“The oil exporters in the Middle East … are in the first instance impacted by the decline in oil prices that affects their budgets and balance of payments,” said Masood Ahmed, the director of the Middle East and Central Asia department of the IMF.
“The GCC states, which are most strongly affected by the oil decline, will see export earnings … decline by about US$300 billion – which is about a fifth of their economy,” Mr Ahmed said.
The IMF estimates the UAE’s breakeven oil price at $57. This means that the UAE is likely to run a fiscal deficit of 3.7 per cent of GDP this year and next year, before returning to surplus in 2017.
The UAE’s large financial reserves, which are equivalent to about 400 per cent of GDP, mean that the country will not be forced to cut spending anytime soon.
“The UAE has large buffers in the form of foreign assets, which imply that financing of [its fiscal] deficits will not be an issue for them,” Mr Ahmed said.
“This is the time [for GCC states] to use those [reserves], rather than to react to in a knee-jerk way by cutting economic activity and government spending,” he said.
Mr Ahmed stressed that the volatility of oil prices meant that the IMF could not be certain exactly what will happen to growth in the Arabian Gulf.
“The futures market is telling us that … oil prices over the next five years will work their way back up to more than $70 per barrel,” he said. “But the futures market is only one source of information. We don’t know where oil prices will settle, but we know that they are volatile.”
Mr Ahmed said that the low oil price highlights the need of the Middle East to cut energy subsidies, saying that they are “inefficient, encourage energy overconsumption and benefit mainly the rich.”
“Even after decline by half [of the price of oil] in most [oil-exporting] countries, energy prices are still below the new oil prices. There is still a need to raise energy prices,” he said.
On Tuesday the IMF lowered its forecast for Middle East and North Africa growth for this year on lower oil prices and euro zone weakness.
abouyamourn@thenational.ae
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