Lewes, DE -- (ReleaseWire) -- 03/28/2014 -- Our baseline scenario sees relatively solid growth over the coming quarters, with real GDP forecast to expand 3.9% and 4.1% in 2014 and 2015 respectively. The outlook for Dubai has become more promising relative to that for Abu Dhabi, with the former benefitting from increased activity in the trade and tourism sectors, in addition to our expectation that the all-important real estate industry is now on the road to recovery. Credit growth to the private sector will remain anaemic through 2014 as commercial banks continue to increase provisioning against potential loan losses due to the debt funding cliff.
Major Forecast Changes
On the back of a stronger-than-expected recovery in Dubai’s residential property sector, we have revised up our 2014 average inflation forecast, and now project the headline print coming in at 2.0% this year.
Key Risks to Outlook
Any attack by Islamist militants would result in a fundamental reappraisal of both the UAE’s, and the wider region, risk profile. A further uptick in tensions between the West and Iran could result in a deterioration in the UAE’s sovereign risk profile given the close proximity and deep trade ties between the two countries. Downside risks to oil prices in 2014 are elevated, which could undermine the UAE’s already fragile macroeconomic recovery.
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A potential deal between Iran and the UAE over Abu Musa and the Tunbs islands is a very positive step for the region in reducing geopolitical risks. The deal removes of the few external risks facing the UAE, while also indicating Iran's change towards a more accommodative foreign policy.
The UAE is not without its challenges. However, it is one of the more stable Gulf states over the long term, with a small, wealthy population; no history of terrorism; and no sectarian tensions to speak of.
We maintain our bullish outlook on the UAE's economies as a wealth of data points to continued growth. Consumer and business sentiment remains positive, underlining our particularly bright outlook for household consumption and fixed investment over the coming quarters.
We hold a bullish outlook on Dubai's economy over the coming years as a whole host of sectors possess significant growth prospects. We expect the emirate to become an increasingly important growth driver in the UAE as the emirate records the fastest GDP growth rates on the back of the tourism, real estate and retail sectors.
Publisher expect Abu Dhabi to see a broad slowdown over the coming years as gains in the crucial oil sector become harder to maintain. We forecast Abu Dhabi's real GDP growth to reach 3.5% in 2014 and 3.2% in 2015, following an estimated 3.6% in 2013. This forecast lags our expectations for the UAE as a whole as the non-oil sector will be unable to maintain the former growth reached by the larger oil sector.
We maintain our bullish outlook for the emirate of Sharjah, largely on the back of our positive forecast for Dubai. Sharjah will benefit from rising housing costs in neighbouring Dubai which should push up demand for the former's own housing sector. In addition, Sharjah's growing shipping and tourism reinforce our sanguine outlook for the emirate.
In line with our expectations, inflation continues to tick higher in the UAE, with Dubai leading the price rise. We forecast inflation to average 2.0% in 2014, up from 1.1 % in 2013. The key driver of inflation in the UAE will be house prices, as the inflationary impact of food diminishes.
We expect 2014 to be a key year for the global Islamic finance industry as several new markets come to the fore. It has been our longheld view that rather than becoming an integrated global financial system, Islamic banking will see the creation of regional hubs. Even with this slightly fragmented outlook, we still expect significant growth for the sector.
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