The United Arab Emirates’ (UAE) current account to edge down to a surplus of $50.8 billion (12%) in 2014, as the trade surplus drops to $127.1 billion under our baseline oil-price assumption of $109/barrel, according to Bryan Plamondon, Senior Economist at IHS.
Merchandise exports are seen posting moderate growth of 6.3% in 2014, to $402.5 billion, reflecting the constrained oil-export earnings.”
Non-oil exports should provide some underlying strength, thanks to healthy demand from Asia, the UAE’s main destination for goods trade.
Additionally, UAE re-exports, which weakened because of Western sanctions imposed on Iran, which previously had accounted for about 20% of UAE re-exports, could see some lift given the six-month interim accord between Iran and the P5+1 countries. Prior to sanctions, Dubai, which is the UAE’s trading hub and accounts for three-quarters of total re-exports, had strong trade and business links with Iran, but these shrunk considerably with traders and businesses coming under greater pressure and constraints in dealings with the Islamic Republic, especially regarding trade financing.
Strong domestic demand is expected to fuel import growth of 14% in 2014, with the import bill rising to $275.4 billion. Meanwhile, tourism and hospitality services should see further growth in 2014 and remain supportive to the UAE’s current-account balance. If oil prices were to average $100/barrel in 2014, the current-account surplus would narrow to $43.7 billion (10% of GDP) this year. In contrast, if oil prices average $120/barrel, the current-account surplus would rise to $58.9 billion (13% of GDP) in 2014. Further narrowing of the UAE external balances is expected in 2015 as oil prices fall to $102/barrel, reducing oil income and paring down the current account to a surplus of $42.7 billion (9% of GDP). Certainly there is greater upside risk to the oil-price forecast now with the instability and violence in Iraq, but to date Iraq’s southern oil fields, pipelines, and export terminals all remain secure.