Weak oil price will help to keep UAE inflation low, says economy minister

Sultan Al Mansouri expects inflation to hover at about 2.5 per cent this year as the oil price slump helps to lower the price of imports.

Sultan Al Mansouri's forecast of 2.5 per cent inflation is in line with estimates from the IMF. Sarah Dea / The National

The weak oil price should help to contain inflationary pressure in the UAE this year, the economy minister said.

Sultan Al Mansouri expects inflation to hover at about 2.5 per cent this year as the slump in the oil price helps to lower the price of imports.

Inflation rose last year to 3.1 per cent, its second-highest level for five years, driven by surging house prices.

The minister's forecast of 2.5 per cent inflation is in line with estimates from the IMF.

“As long as we have around 2 and 2.5 per cent [inflation], that is controllable,” said Mr Al Mansouri on the sidelines of a conference in Sharjah on foreign direct investment. “The price of oil reflects on the price of imported goods also. It is definitely a benefit to the economy from the reduction of the prices of oil indirectly.”

Brent has more than halved since reaching about $115 a barrel in June because of a supply glut sparked largely by the US shale boom.

But Brent closed on Friday up 2.2 per cent at $57.80 a barrel, as a drop in the US rig counts indicated a slowdown in the US shale industry.

The UAE economy will post growth ranging from 4 to 4.5 per cent, depending on the level of oil prices this year, the minister reiterated. “Watching what is happening in the last few days in the area of prices of oil, I see some positiveness happening in that area,” said Mr Mansouri.

“I expect that [the drop in oil price] will energise the economies of China, Europe, America and so on, and the demand on oil will increase and eventually this wheel of the prices of oil will start to rise up, but not as much as it used to be.”

The UAE’s own forecast for economic growth this year is higher than IMF estimates. The IMF cut its 2015 UAE growth forecast, citing the effect of lower oil prices on Abu Dhabi’s energy sector. The UAE’s economy, it said, will grow by 3.5 per cent – 1 percentage point below the IMF’s October estimate.

Separately, the minister said the ministry is working on a new foreign direct investment (FDI) law that will help to boost FDI in the country. FDI rose 25 per cent to US$13 billion last year, he said.

Follow The National's Business section on Twitter