World Economy

IMF Lowers UAE Growth Forecast

Overall growth this year is projected to reach 1.3% from 1.5%.Overall growth this year is projected to reach 1.3% from 1.5%.

The IMF has lowered its growth forecast for the United Arab Emirates for this year and 2018, as low oil prices continue to impact the economy.

The fund, however, said over the medium term non-oil growth is forecast to stay around 3%, thanks to higher investment in the lead-up to Expo 2020. It also said the introduction of a 5% value added tax in January next year will not have a “significant adverse impact on growth,” AFP reported.

Overall growth this year is now projected to reach 1.3%, compared to its 1.5% forecast in April due to a slower expansion in the non-oil economy, which will grow 3.3%, compared to 3.8% in its previous forecast. The growth forecast for next year was lowered one percentage point to 3.4% from 4.4% in April, owing to an easing of oil growth to 3.2%, compared with 6.2% in the April forecast.

The fund said in the report that the risk of low oil prices is affecting the economic outlook. “Growth is projected to recover over the next few years, as the pace of the necessary fiscal consolidation eases, global trade regains momentum, and investment, including for Expo 2020, accelerates,” the IMF said.

“This outlook is subject to downside risks, stemming mainly from a further sustained decline in oil prices, tighter financial conditions, a rise in protectionism and an intensification of regional conflicts.”

The benchmark Brent oil price is down 14% year-to-date to $48.91 a barrel from $56.82 a barrel at the end of last year as a global oil restraint agreement fails to dent a supply glut and amid rising production from non-OPEC countries such as the United States, where share oil production is rebounding.

One of the risks to growth is non-compliance to the oil restraint deal, the IMF said. The International Energy Agency, the energy watchdog for industrialized countries, said this month that adherence to OPEC cuts in June sank to 78%, the lowest level since the deal started in January, as a number of members produced more than what they agreed to under the deal.

“Spillovers from other oil exporters, particularly the (Persian) Gulf Cooperation Council Arab countries (UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait) could weaken trade, tourism, and asset prices, while increased issuance by other oil exporters to finance deficits could put pressure on the cost of funding.”

If this scenario of lower oil prices were to take place, it would lead to lower oil exports and fiscal revenues.

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