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United Arab Emirates Outlook: Liquidity Helps

Stronger oil prices and the moderation of EZ-originated financial stress will cushion the UAE, with Abu Dhabi still outperforming Dubai. Still, fiscal policy will be conservative, even in Abu Dhabi, and balance sheet repair and restructuring will cap growth below potential. The reduction in global and particularly eurozone (EZ) risks ease pressures on  Dubai, whose re-export trade has suffered from greater sanctions on Iran. Global financial consolidation will not leave the financial sector unscathed, while debt restructuring pressures remain, weighing on liquidity. More public support may be needed to refinance government-linked debt. Commercial residential oversupply continues to weigh on prices and housing activity, leaving inflation low on policy makers’ lists of concerns. Government measures herald more consolidation in the property markets, and further rollover of debt, pushing out the problems into the future.

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