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Higher infrastructure spending to boost UAE economy

UAE ended the last quarter o the year showing rising economic confidence in line with a boost in spending and non-oil growth. Oil price volatility remains a concern.

Spending leading up to the Expo 2020 would boost economic growth by 3.8 percent over the next five years. The UAE government in its 2019 budget showed planned spending growth shooting up to 17.3% in 2019, compared to 5.5% in 2018 Reforms such as 100% ownership to foreign investors and long-term visas have boosted international investments and drawn new investors

UAE’s overall economic confidence in the fourth quarter of 2018 climbed on the back of higher infrastructure spending and non-oil growth, despite weak third quarter reports in 2018 and global economic confidence dropping to an all-time low, the latest UAE GECS survey of business executives said.

The survey conducted by the Institute of Management Accountants (IMA) and the Association of Chartered Certified Accountants (ACCA) found that UAE’s real GDP is projected to grow in 2019, fueled primarily by continuing construction activities ahead of Expo 2020.

This corroborates a recent government analysis, released by the Dubai Chamber of Commerce and Industry, which stated that Dubai’s construction and infrastructure spending leading up to the Expo 2020 would boost economic growth by 3.8 percent over the next five years.

Volatility in oil prices due to economic uncertainty among OPEC players, growth in the U.S. shale oil output, and counteracting OPEC production cuts could be a drag on the UAE economy. Strong economic fundamentals, however, mean that the fiscal policy may not need to be tightened. With the currency pegged to the U.S. dollar, the slower pace of monetary tightening also raises economic expectations.

Read: UAE economy forecast to grow by 3.8 percent between 2019 and 2023

It is worth noting that the correlation between the UAE government’s expansionary stance and UAE’s economic growth has added weight to the positive economic outlook. A sharp increase in government spending, despite a previous dip in confidence, has spurred growth forecasts for 2019. The UAE government in its 2019 budget showed planned spending growth shooting up to 17.3 percent in 2019, compared to 5.5 percent in 2018. Additionally, Dubai’s AED 9.2 billion allocation for infrastructure spending in 2019, has emphasized the country’s push toward non-oil growth.

 

Government spending spurs UAE growth

 

In its forecast for 2019, the International Monetary Fund (IMF) projected UAE’s economic growth to reach 3.7 percent. The World Bank predicted a slightly lower GDP growth of 3 percent in 2019 and 3.2 percent in 2020.

In addition to Dubai’s vibrant goals, Sharjah’s diversified economy is also backed by another record budget that will ensure increased spending on infrastructure in 2019. Sharjah’s AED 26 billion budget, which is 10 percent higher compared to the previous year, shows the government’s drive for growth even in a challenging environment.

A slew of forward-looking legislative reforms such as 100 percent ownership to foreign investors in certain sectors and availability of long-term visas have further boosted international investments and drawn new investors to the UAE.

In comparison, economic confidence in the Middle East improved marginally, although it still remains in the negative, the new survey showed. This indicates that the confidence measure in the region is still closely tied with fluctuating oil prices, which could impede export revenues and add pressure on the GCC governments.