The IMF has upgraded its GDP forecast for the UAE this year as the economy benefits from a strong rebound in Asia and agreement over Dubai World’s US$24.9 billion (Dh91.45bn) debt restructuring plans.
Economic expansion would reach 2.4 per cent, faster than the 1.3 per cent it previously forecast. The IMF’s latest forecasts are contained in its revised world economic outlook report released today.
Masood Ahmed, the director of the Middle East and Central Asia department of the IMF, said last month it would raise its forecast on strong demand for UAE services, “particularly in light of Asia’s rebound and the agreement on debt restructuring, which will resolve uncertainties and contribute to boosting real estate-related sectors”.
The revision is a recognition of positive news from the UAE in recent weeks.
Dubai World’s announcement of an almost unanimous agreement with creditor banks over its debt restructuring plans, successful bond sales by Dubai and Emaar Properties, and the take-over of Islamic mortgage company Tamweel have all buoyed confidence in the recovery.
Oil prices have also strengthened, reaching a five-month high above $83 yesterday.
But the fund now believes the global financial crisis had a more serious impact on the UAE economy last year than it anticipated. It shrank by 2.5 per cent, not 1 per cent as earlier forecast, the IMF said.
It added, however, that the economy would rebound to faster growth of 3.2 per cent next year.
The IMF expects the world economy to expand by 4.8 per cent this year before cooling to growth of 4.2 per cent next year, due to a temporary slowdown in the second half of this year and the first half of next.
The IMF downgraded its forecast for the MENA region to 4.1 per cent for this year, while raising its growth forecast for next year to 5.1 per cent.
The strength of the recent economic recovery in the MENA region was largely underpinned by the rebound in oil prices from their trough last year, which had helped boost receipts for oil exporters, it said.
A sizeable and rapid fiscal policy response, especially in oil-exporting economies, had helped to soften the blow of the financial crisis on the non-oil sector.
“An immediate challenge for policymakers in this region is to revive the financial intermediation process,” said the IMF report.
In many economies, credit growth had been sluggish after the downturn due to weak balance sheets for the banking and the non-financial corporate sectors.
“Prominent corporate defaults in Dubai, Kuwait, and Saudi Arabia have contributed to increased uncertainty regarding the health of the corporate sector generally,” it said.
Although an improvement in oil prices meant the current account balance of oil-exporters was expected to recover, fiscal finances would not return to pre-crisis levels, the IMF said.
The UAE’s current account balance would climb from 4 per cent of GDP last year to 5.4 and 5.6 per cent this year and next, respectively.
The IMF expects inflationary pressures in the UAE to remain muted, averaging 2 per cent this year and 2.5 per cent next year.
Qatar is anticipated be the leading growth engine in the region, with GDP of 16 per cent this year before accelerating to 18.6 per cent next year.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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