UAE - Mubasher: In its recent research, the National Bank of Kuwait (NBK) has said that the UAE’s economic outlook remains stable in spite of a slacking global economy, trade disputes, softer energy demand, and heightened geopolitical tensions.

Affected by an uncertain global and regional geopolitical situation, the overall economic growth stood at 3.7% year-on-year (YoY) over the first quarter of 2019, boosted by the oil sector, whereas the non-oil economy edged lower to 0.3% on an annual basis, according to a press release on Tuesday.

While growth prospects in the medium term remain solid, extra efforts should be made to ensure "diversification and continued progress in fiscal, private sector and regulatory reform" to weather adverse external shocks.

“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 2020-2021 as the impact of structural reforms, fiscal stimulus and the effects of EXPO 2020 come into play,” said NBK’s group chief economist, Saade Chami. 

Policymakers stimulating non-oil growth

In a way to boost non-oil growth, policymakers are adopting several structural measures and an expansionary fiscal policy in a way to combat the weakness in the private sector demand and low job creation in 2019.

“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,” Chami added.

Shifting trade activity

Because of a challenging external environment, the UAE managed to redirect its trade closer to home, NBK Research said. Therefore, trade ties with other GCC countries have increased in line with the GCC countries’ share of UAE non-oil exports leaping to 34.1% in 2018 from 23.2% in the previous year, and with Saudi Arabia topping the country’s regional trading partners by 16%.

“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 aluminium 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,” he concluded.