The country's banking system also continues to restrict its dealings with Iran without any material impact on the economy, governor says
UAE Central Bank says economy to expand 4.2% in 2019
The UAE economy will expand 4.2 per cent next year, faster than the International Monetary Fund's estimate, as the country carries on with reforms and sustains no material impact from restrictions on Iran, the central bank governor said on Tuesday.
“Things are starting to materialise and growth is there and liquidity is there,” Mubarak Al Mansoori said at a Institute of International Finance conference in Abu Dhabi. “A lot of government initiatives have been announced and we are in good shape.”
The economy is forecast to grow 2.8 per cent for this year, with 3.3 per cent growth in the non-oil GDP, which currently accounts for around 77 per cent of the economy, the governor said. The IMF projects the economy will grow 2.9 per cent this year and 3.7 per cent in 2019.
"A couple of factors will drive stronger growth over the next twelve months, including rising oil output, fiscal stimulus and a step-up in preparations for the 2020 World Expo," said Jason Tuvey, an economist with Capital Economics.
Inflation, which had peaked in January this year with the implementation of 5 per cent VAT, is set to moderate to 3.6 per cent by the end of the year, Mr Al Mansoori added.
The UAE, the Arab world's second-largest economy, is implementing a set of reforms to boost growth. In June, Abu Dhabi announced a three-year Dh50 billion stimulus programme. Dubai and Abu Dhabi have also waived corporate fines.
The Emirates also announced a raft of regulations including a new foreign direct investment law and a debt law, which will help attract capital and increase the liquidity of financial markets.
The UAE doesn't expect renewed US sanctions on Iran, which came into force on Monday, to hurt its economy despite strong commercial ties with Dubai.
“We do not expect material impact [from the renewed US sanctions on Iran],” the governor added. “Ever since they [partners to the 2015 Iran nuclear deal] lifted the sanctions, the banks did not go back as normal due to having to keep their relationships with clearing banks in the US.”
The UAE currently has two Iranian banks and “they have been minimised in terms of their activity,” Mr Al Mansoori said, adding, “they are only catering for Iranian nationals living in the UAE mainly,” who have had difficulty in opening accounts with other banks.
The UAE banking sector is liquid and strong, with credit growth to the private sector increasing 6.5 per cent in the first nine months of the year, the governor said. Islamic banking is growing at a rate of 9 per cent annually and accounts for about 20 per cent of the banking sector’s total assets.
“The banking sector is in a very good position to excel and support economic growth,” he added.
The sector is not being impacted by the drop in real estate prices and banks continue to offer credit to the sector.
"The property market is in a good position more than before and [bank] lending continues," the governor said.
Regarding consolidation in the banking sector, the governor said additional mergers in the industry as the region has “super big banks.”
Currently, Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank are in talks to merge and that tie-up could end up being two banks, he added.
The banking sector continues to attract inflows in the form of non-resident deposits, which rose to a two-year high of Dh205.4 billion at the end of September and accounted for 11.8 per cent of total deposits in the UAE.
The governor also emphasised that the bank will maintain its peg to the dollar despite the faster rate hikes in the US, which the UAE and other GCC states mimic.
“We have a stable currency for trade and investment and this gives a lot of stability and confidence.”