According to the Institute of International Finance (IIF) solid fundamentals and non-oil sectors drive GDP growth. The UAE economy grew 4.7% in 2013, supported by higher oil production. This growth trend is forecast to continue into 2014 supported by strong non-hydrocarbon growth.
The IIF economists have forecast a non-oil sector growth of 5.2% while the overall UAE economic growth is expected to moderate to 4.2% this year due to a decline in oil revenues, While Dubai’s GDP is expected to grow in excess of 5%, Abu Dhabi’s economy is projected to grow 3.6% this year.
Strong non-oil sector growth indicates by leading financial indicators such as real estate prices, equity market valuations, business confidence index and the evolution of credit default swaps (CDS). Dubai’s sovereign CDS spreads declined from 226 basis points (bps) in 2012 to 181 at the close of the first quarter of this year indicating improved market confidence in government debt and creditworthiness of Government Related Entities (GREs).
The IIF has cautioned Dubai against further build-up in public debt. While Dubai’s $20 billion debt refinancing agreement with the Central Bank of the UAE and the Government of Abu Dhabi has eased the debt servicing burden.
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