The UAE stands out among its GCC peers as best equipped to cope with potentially prolonged weakness in oil prices given its diversified economy and solid buffers, Barclays has said in a research note.
Barclays said ongoing official efforts to diversify the UAE’s economic structure and encourage the expansion of the non-hydrocarbon sectors, notably in Dubai, have seen the share of the non-hydrocarbon sector increase from 44.7% of GDP in 2000 to 61.1% of GDP in 2013.
It added that the UAE’s breakeven oil price is around $64 per barrel, based on exports of 2.6 million bpd in 2014.
The research said banking sector liquidity may be affected, but sovereign support and continued deleveraging in the corporate sector should help.
Analyst Alia Moubayed said Abu Dhabi’s corporates should continue to benefit from supportive technicals.
“A state-driven focus on deleveraging should continue to result in lower bond issuance by Abu Dhabi large corporates in 2015. This, coupled with ample local bank liquidity and a shortage of sovereign paper, will continue to support most of Abu Dhabi quasi spreads despite lower oil prices,” said Moubayed.
The research added that Dubai’s economic recovery is also unlikely to be dented by lower oil prices.
While preparations for the Expo 2020 are ongoing, Barclays said it expects GDP growth to reach about 5.7% year-on-year in 2014 and 2015 and accelerate only thereafter.
“We expect the Dubai government to continue its fiscal consolidation. Along with higher growth, fiscal improvements should allow government debt-to-GDP to continue declining in 2014 and 2015,” Moubayed added.
