“In our view, the UAE economy is likely to soft land this year, as suggested by only modest deceleration in high-frequency indicators. The near-term direct impact of lower oil prices on UAE is more muted than for GCC peers. However, the indirect impact through lower regional and domestic liquidity, real estate, external sector and indebtedness would be more pronounced if oil prices remain low for long. In the near-term, we think Dubai should be able to tackle refinancing challenges. Nevertheless, we expect large Dubai projects to be gradually phased over time. We see strong Dubai government commitment to the timely completion of the Expo 2020. Disciplined fiscal policy remains paramount for Dubai government debt dynamics to take a stabilizing sustainable path,” said Jean-Michel Saliba, MENA Economist.
Jean-Michel Saliba continued, “While in Saudi Arabia, we think wider deficits cushion growth, due to softer non-oil GDP growth, risks on the government capex pipeline, stable politics and unwavering oil policy. Economic activity remains cushioned in the near-term due to continued expansionary fiscal stance and still healthy credit growth. Overall on-budget capital expenditures are likely to be curtailed, although strategic projects appear ring-fenced. This is likely to come at the cost of wide and unsustainable fiscal deficits. The absence of material adjustment is likely to imply a need for a sharper adjustment down the line if oil prices remain low for long. Given the rapid forex reserves drawdown, domestic borrowing appears increasingly likely. Despite the increased fiscal strains, we think that Saudi Arabia is unlikely to capitulate on its energy policy.”
“On the contrary, Qatar remains the most resilient GCC economy, in our opinion. We expect Qatari macro to continue outperforming GCC peers, as World Cup capex spending appears set to continue. Qatar’s fiscal and external breakeven oil price remains among the lowest in the GCC, at US$66/bbl and US$60bbl respectively. Regionally, stabilizing oil market share increases downside risk to oil prices. Higher uncertainty may have a negative wealth effect and implications on business and consumer confidence, while lower marginal oil liquidity weakens money supply and private sector credit growth,” concluded
