New survey shows that the sharp rise in oil prices is a key factor in improved sentiment across the Middle East
According to a new survey, business confidence in the UAE rose to its highest level in three years during the second quarter of 2018.
In the latest edition of a survey by the Association of Chartered Certified Accountants (ACCA) and IMA Global Economic Conditions, business confidence rebounded to its highest level since Q2 2015 across not only the UAE but Middle East in general.
The survey attributed the primary factor for the recovery in confidence to the sharp rise in oil prices, which peaked at $80 per barrel in late May, compared with a low of just $35 per barrel at the start of 2016.
The survey continued that revenues increased in line with the rising price of oil and the introduction of VAT in both the UAE and Saudi Arabia led to an ease in fiscal austerity.
According to the Head of ACCA Middle East, the combination of rising oil prices and changes in fiscal policy will continue to drive the economic outlook across both the UAE and wider Middle East.
The recent OPEC deal, which was agreed in late June and saw member countries agree to raise production, is likely to dampen prices over the coming months, however with VAT being introduced across the GCC – already live in the UAE and Saudi Arabia – it will relieve the pressure that was once felt prior to this fiscal policy being introduced. This will continue to provide economic relief and further reduce the oil price dependency in relation to economic growth – a clear objective of the decisionmakers in the UAE for some time now.
Another factor which has undoubtedly had a positive effect on overall business confidence is the overall expenditure for the 2020 World Expo in Dubai. At the end of last year, the Dubai government allocated a budget of Dh56.6 billion (approx. $15.5 billion) for infrastructure spending relating to the 2020 World Expo in 2018 alone.
The survey warned that the introduction of VAT at the start of 2018 in the UAE caused inflation to rise, which will weigh on growth by depressing consumers’ purchasing power.
It added that higher interest rates in the US will also drag on prospects because the UAE’s exchange rate is pegged to the US dollar and local interest rates closely track those in the US.
From a global perspective, the survey said that the economic recovery that started in late 2016 is starting to slow down and lose momentum, with confidence in Q2 dipping from its Q1 high.
Although it remains high by recent standards, the slight fall in confidence reflects increasing fears of a trade war between the US and China. This continues to affect the global outlook, with China’s economic sentiment falling sharply.
Source: Arabian Business