The United Arab Emirates (UAE) central bank expects gross domestic product (GDP) to grow by 4.2 per cent in 2019, up from a stronger-than-expected 2.8 per cent growth this year, its governor said on Tuesday.
“Things are starting to materialise, growth is there, liquidity is there, a lot of government initiatives are there. I think we are in good times,” Mubarak Rashed al-Mansoori said at a conference in Abu Dhabi.
The central bank said in September it expected UAE’s inflation-adjusted gross domestic product to expand 2.3 per cent in 2018. But al-Mansoori said on Tuesday that the bank hoped to close the year at 2.8 per cent for GDP growth.
He later told reporters that growth forecasts for next year were mainly driven by oil, but there would be strong contributions from the non-oil sector as well.
The UAE introduced a 5 per cent value added tax (VAT) this year, as the country diversifies its economy away from oil revenues.
The VAT implementation has a one-time effect on inflation, which is expected to be 3.6 per cent, said the governor. That is roughly in line with an IMF forecast of an average of 3.5 per cent this year, up from 2 per cent in 2017.
Growth of the non-oil sector is expected to improve next year, with non-oil GDP growth at 3.7 per cent, compared to 3.3 per cent this year, said al-Mansoori.
He said the UAE did not expect a material impact on its economy from the United States latest sanctions on Iran.
“Actually, we don’t expect material impact provided that when the previous sanctions were on, banks have taken measures and when they lifted sanctions, banks did not go back as normal due to having to keep their relations with clearing banks in the US”, Mansoori told reporters on the sidelines of the conference.
The two Iranian banks operating in the UAE will continue to operate because they have minimal operations only dealing with Iranians living in the country, said Mansoori.
Bank Melli and Bank Saderat both have branches in the UAE.
Mansoori said with the federal debt law of the UAE now passed, the central bank will issue debt, bonds and sukuk.
“We will only issue as an agent for the government, if the government wants to issue debt.”
He said the debt issuance will help build a yield curve that is going to set the stage for banks as well as other borrowers to tap capital markets.
He said a UAE three-way bank merger was complex and in its early stages – and he expected to see more consolidation in the region.
Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank are in talks for a deal that could form a lender with $113bn in assets.