The UAE's economic outlook remains stable, despite a slowing global economy, trade disputes, softer energy demand and heightened geopolitical tensions, according to research published by the National Bank of Kuwait (NBK). Headwinds from the uncertain global and regional geopolitical situation have had an adverse impact on economic growth. Overall growth stood at 3.7% y/y in 1Q19, supported by the oil sector, while the non-oil economy slowed to 0.3% y/y. Growth prospects in the medium term remain solid however further efforts towards diversification and continued progress in fiscal, private sector and regulatory reform will be required to weather the possibility of continued adverse external shocks. NBK Group Chief Economist, Dr. Saade Chami, commented: "The UAE non-oil sector experienced fairly robust growth rates during 2010-2014, supported by the government's diversification efforts. However, after the sharp fall in oil prices in 2014, non-oil growth began to slow, reaching 1.7% in 2018. The medium-term outlook for the UAE remains stable underpinned by sizable SWFs assets and the government commitment to forge ahead with reforms. Possible extensions to the OPEC+ agreement could limit the oil sector growth in the medium term. The non-oil economy is expected to grow modestly by 1% in 2019, trending up to nearly 2% during 2020-21 as the impact of structural reforms, fiscal stimulus and the effects of EXPO 2020 come into play." Non-oil growth was below 1% y-o-y for three consecutive quarters (since mid-2018), reflecting ingrained slack in the economy. Weakness in private sector demand and low job creation in 2019 are being combatted with the adoption of several structural measures and an expansionary fiscal policy. "The UAE's government has rolled out a number of structural reforms to reduce the cost of doing business and improve the investment climate. A new investment law was recently issued to loosen foreign ownership requirements, and Dubai and Abu Dhabi have adopted several initiatives to support SMEs including supporting business accelerators and easing financing," Dr. Chami said. A difficult external environment has provided an opportunity for the UAE to redirect its trade closer to home. Trade ties between the UAE and other GCC countries have consequently increased, with GCC countries' share of UAE non-oil exports rising from 23.2% in 2017 to 34.1% in 2018. Saudi Arabia tops the list of regional trading partners, attracting 16% of the UAE's non-oil exports. "The UAE has faced some headwinds from a global slowdown and trade disputes. The imposition of trade tariffs by the US directly affected the UAE steel and aluminum industry and US sanctions have caused UAE re-exports to Iran to drop significantly. Despite these challenges, the UAE has diverted part of UAE trade to other geographies, and this has so far proven effective," Dr. Chami noted. — SG
