Economists have raised their forecasts for UAE growth this year as higher oil output helps to provide a buffer against ripples from a slower global economy.
GDP expansion will reach 3.3 per cent this year, up from a previous forecast of 2.6 per cent, National Bank of Abu Dhabi(NBAD) said in a regional economic outlook report released yesterday.
HSBC lifted its forecast by 0.9 percentage points to 3.7 per cent, according to the report.
The upgrades reflect a change in expectations about UAE oil output.
"Under the assumption that oil output has risen we have revised our real GDP forecast upwards," said Giyas Gokkent, the chief economist of NBAD and the author of the report.
After UAE oil output was increased last year to compensate for the loss of Libyan production, many economists assumed output would moderate or even fall this year. Instead, tougher sanctions against Iran have prompted the UAE and other GCC states to push up output once more. UAE oil output was up by 5 per cent in the first half of the year compared with a year earlier, according to NBAD, referencing reports citing International Energy Agency data.
The rise has helped to lift revenue flowing to government coffers. Collectively for the GCC, fiscal surpluses would reach US$177 billion (Dh650.11bn) this year, up from $133bn last year, NBAD estimates.
Still, in Abu Dhabi the higher oil windfalls are not expected to translate into a further increase in capital spending by the Government. Total UAE government spending has almost quadrupled between 2005 and this year as the country pushes ahead with ambitious projects such as a railway across the country.
"In the context of the Abu Dhabi 2030 plan, capital expenditure was supposed to rise over a number of years and peak in 2015," said Mr Gokkent. "I think the latest development is that there's an effort to consolidate expenditure as expenditure growth has been very rapid [in recent years]."
With less government spending to grease the wheels of the economy, more focus may fall on the private sector to drive momentum. The non-oil sector has remained robust so far this year, with companies in manufacturing and services reporting growth even as activity has stalled in China and the euro zone.
"Despite being more exposed to the European slowdown than any other Gulf state, the UAE has shown resilience over the first three quarters of 2012," Simon Williams and Elizabeth Martins, economists at HSBC in the Middle East and North Africa region, wrote in their report.
But NBAD and HSBC differed in their assessment of the economy next year. NBAD forecast GDP growth would moderate to 3.17 per cent, while HSBC expected an acceleration to 4 per cent. Last year, NBAD said GDP rose 4.17 per cent, similar to HSBC's assessment of 4.1 per cent.
Despite challenges facing the regional economy ranging from tensions surrounding Iran to the conflict in Syria, both reports cast a broadly more positive outlook for the region.
"Yet while these headlines highlight the scale of the challenges the Middle East and North Africa faces, they risk masking significant improvements in the underlying story, particularly in the post-revolutionary states," said Mr Williams.