The Emirates' gross domestic product growth remains strong, even after a year of modest activity off the back of a real estate slump and the effect of VAT introduction, a leading global bank said.
In its Middle East quarterly report release this week, Natixis said that UAE GDP growth recovered 2.2 per cent year-on-year in the first quarter of 2019 from 1.9 per cent in the final quarter of 2018.
The country's non-oil sector remained buoyant, growing 1.6 per cent supported by government spending.
As the Emirati dirham is closely pegged to the US dollar, the central bank of the UAE closely follows the Federal Reserve's monetary policy.
“While its monetary policy entered a tightening cycle in November 2017, adding 125 basis points until December 2018, we expect a change in policy before the end of 2019 in line with our scenario for the Fed. We forecast the policy rate to be cut by 50bps to end the year at 2.25 per cent,” said Lysu Paez-Cortez, senior EMEA Emerging Markets Economist at Natixis, who wrote the report.
UAE allows foreign ownership in 13 sectors, which looks likely to help its economy project healthy growth. On July 2, the country allowed 100 per cent foreign ownership for companies working in 122 economic activities across 13 sectors, including manufacturing, agriculture and renewable energy.
Previously, foreign investors could not hold more than 49 per cent of a company registered in the UAE without partnering with an Emirati shareholder.
The new foreign investment law, which was approved last year, was brought in to increase foreign investment in the UAE and create jobs.
However, the bank warned the UAE real estate sector is struggling to recover from a five-year downturn.
“Most sectors across the UAE real estate sector remained challenged in the first half of 2019, with prices, rents and number of transactions all facing downward pressure," Ms Paez-Cortez said. "The Dubai market remains particularly weak. According to a local real estate platform, June average Dubai property prices are 30 per cent lower than 2014 peak level at $670,000 [Dh2.4 million], down $10,000 on average since April, and prospects for property prices and rents are expected to soften for the remainder of the year."
But new initiatives have been set to boost demand in the second half of this year. The government recently announced several plans to support demand in the coming months, notably to support foreign residents' home ownership.
Abu Dhabi passed a new property ownership rule for foreigners; the long-awaited freehold law will now allow foreigners to own freehold land and property in the same way as citizens in the emirate’s investment areas. In Dubai, the launch of a permanent residency programme should provide investors and exceptional workers with permanent residency.
In the GCC region more widely, the bank said that growth in oil exporter nations “will remain subdued”.
But it added that economic prospects for the second half of the year remain well oriented for most GCC economies, despite political tensions that have increased in the region over the last few weeks.
Source: The National
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