United Arab Emirates Business Forecast Report Q4 2014

United Arab Emirates Business Forecast Report Q4 2014

Core Views
Our baseline scenario sees relatively solid growth over the coming quarters, with real GDP forecast to expand 3.9% and 4.0% in 2014 and 2015 respectively. We expect Dubai to outperform Abu Dhabi, with the former benefiting from increased activity in the trade and tourism sectors, in addition to our expectation that the all-important real estate industry is now set for sustained growth. Credit growth to the private sector will remain relatively slow 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 3.5% this year.
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Foreign Policy 8
Alleged UAE Involvement Heralds Regional Entanglement In Libya.8
The UAE's and Egypt's air strikes in Libya, if confirmed, illustrate a new regional dimension to the latter's civil war and are likely to be
the start of external military engagement in the country, rather than an end in itself.
table: Political Overview..8
Long-Term Political Outlook 9
Three Challenges For The Coming Decade.9
The UAE 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. That said, it is not without its challenges.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
UAE Economic Activity .. 14
Sanguine Outlook Across Economy..14
We maintain our bullish outlook on the UAE's economy, as a host of indicators point to continued growth. Consumer and business
sentiment remains positive, underlining our particularly upbeat views on household consumption and fixed investment over the coming
quarters.
table: UAE - GDP By Expenditure ..14
Dubai Economic Activity 15
Returning To The Boom Years ...15
We hold a bullish outlook on Dubai's economy over the coming years as a host of sectors possess significant growth prospects. Dubai
will 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.
Table: Dubai - Economic Activity...16
Abu Dhabi Economic Activity 17
Slowing Growth As Oil Sector Sees Marginal Gains ...17
Abu Dhabi will see a modest slowdown in economic growth over the coming years as gains in the dominant oil sector become
harder to maintain. The non-oil sector will become the key growth driver over the coming years, with construction and real estate the
outperformers. We forecast Abu Dhabi's real GDP growth to reach 3.5% in 2014 and 3.2% in 2015, following 5.2% growth in 2013.
Table: Abu Dhabi - Economic Activity...17
UAE Monetary Policy.. 19
Inflation To Peak in 2015 19
Inflation in the UAE will continue pushing higher over the coming months as the recovery in the housing market and a positive
macroeconomic backdrop take hold. In line with our broader views on the economy, we expect inflation in Dubai to outpace Abu Dhabi
and smaller emirates on the back of the former's housing sector.
table: UAE - Monetary Policy.20
Key Sector Outlook. 21
Dubai Housing: Regulation To Ease 'Bubble' Fears .21
The recent run-up in real estate values in Dubai will moderate over the coming quarters on the back of initiatives by the Emirati and
Indian governments. The current run-up in prices is partly down to very low base effects as well as inherent demand, rather than
speculation. We therefore do not believe Dubai is currently in a housing bubble that could wreak havoc on the scale seen in 2009.
Islamic Banking .. 23
New Markets To Emerge, But Impediments To Restrain Growth.23
We maintain our bullish outlook on the global Islamic banking sector over the coming years. However, we believe that growth rates have
peaked and highlight numerous obstacles to the sector gaining global precedence.
Regional Investment Climate 26
MENA FDI: Outperformers And Laggards..26
Political instability in large parts of the Middle East and North Africa will continue to weigh heavily on foreign direct investment inflows
to the region as a whole over the coming years. That said, we see several bright spots for foreign investment and highlight particularly
strong prospects for Morocco, Saudi Arabia and Egypt. By contrast, Iraq and Algeria are set to fall behind.
Chapter 3: 10-Year Forecast... 31
The UAE Economy To 2023 31
Greater Caution, Slower Growth.31
After its recent experience of boom and bust, we are forecasting a slower but more sustainable growth trajectory for the UAE over the
next five to 10 years. Consumer spending will remain the key driver of GDP. However, investment and government spending are also
significant, and this relative dependence on domestic demand puts it at some degree of risk.
table: Long-Term Macroeconomic Forecasts31
Chapter 4: Business Environment. 33
SWOT Analysis 33
BMI Business Environment Risk Ratings.. 33
Business Environment Outlook. 34
Institutions... 34
TABLE: BMI BUSINES AND OPERATION RISK RATINGS34
Infrastructure... 35
TABLE: BMI LEGAL FRAMEWORK RATING.35
TABLE: LABOUR FORCE QUALITY..36
Market Orientation... 37
TABLE: MENA - ANUAL FDI INFLOWS..37
TABLE: TRADE AND INVESTMENT RATINGS.38
Operational Risk.. 39
TABLE: TOP EXPORT DESTINATIONS ...39
Chapter 5: Key Sectors.. 41
Pharmaceuticals & Healthcare... 41
table: Pharmaceutical Sales, Historical Data And Forecasts ...42
table: Healthcare Expenditure Trends, Historical Data And Forecasts ... 43
table: Government Healthcare Expenditure Trends, Historical Data And Forecasts 43
table: Private Healthcare Expenditure Trends, Historical Data And Forecasts .. 43
Telecommunications... 45
table: Telecoms Sector - Mobile - Historical Data & Forecasts 46
table: Telecoms Sector - Wireline - Historical Data & Forecasts 47
Other Key Sectors... 49
table: Oil & Gas Sector Key Indicators..49
table: Defence & Security Sector Key Indicators49
table: Infrastructure Sector Key Indicators...49
table: Food & Drink Sector Key Indicators..50
table: Autos Sector Key Indicators...50
table: Freight Key Indicators50
Chapter 6: BMI Global Assumptions. 51
Global Outlook. 51
Eurozone Downgrade On Poor Q214..51
Table: Global Assumptions.51
Table: Developed States, Real GDP GrowtH, %...52
Table: BMI VERSUS BLOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 52
Table: Emerging Markets, Real GDP Growth, %..53
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