Abu Dhabi and Dubai will be able to maintain a growth rate of approximately 3 percent over the next few years if oil prices remain stable around current levels, Fisch Asset Management said in a new report on Tuesday.
Growth is predicted to remain “steady”, albeit “modest” when compared with over 4 percent per annum achieved pre-2015, the consultancy firm said, adding, the UAE’s conservative spending policy is supported by a low break-even oil price of around $62 per barrel.
Crude oil prices remained positive on Tuesday, with Brent crude up 0.4 percent at $71.67 per barrel.
Separately, Fisch’s subsidiary Independent Credit Review (I-CV) confirmed Abu Dhabi’s credit quality as “AA-”, given its comfortable reserves despite slightly negative national budgets and rising debt levels over the coming years.
Dubai received an upgrade to “BBB+”, stemming from a gradual reduction in total debt, including contingent obligations from state-owned companies.
“The United Arab Emirates is seeing a new period of slow and steady economic growth, supported by twin boosters of oil-producing giant Abu Dhabi partnered with Dubai benefiting from many years of efforts towards diversification,” said Philipp Good, CEO and head of portfolio management at Fisch Asset Management.
Meanwhile, the report warned that the UAE’s stable economic growth is not without risks and that Abu Dhabi has particularly strong exposure to lower oil prices.
The Emirate has a high dependence on oil production, which accounts for up to 50 percent of GDP, with efforts towards diversification still at a tentative stage.
Concerns for Dubai include the high debt levels of state-owned enterprises, substantial investment requirements in the build-up to Expo 2020 and the fact that the emirate’s more diverse economic activity (including trade, tourism and retail) is by “no means immune to a slowdown in the GCC region”, the report added.
However, Fisch asserted that the selective introduction of import tariffs and 5 percent value-added tax (VAT) will not negatively impact economic growth in the UAE, but will instead support the fiscal situation in light of lower oil-related activities.
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