Weaker outlook for pound, euro to impact UAE and GCC as a result of Brexit
Date
9/26/2016 5:33:45 AM
(MENAFN- Khaleej Times) Key sectors such as tourism and real estate affected
The UAE and the oil-rich region would be impacted by the sharply weaker outlook for the pound sterling and euro. The UAE has been the most affected by the recent strengthening of the dollar given its greater diversification, says Dr Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in a comment on the UK's exit from the European Union on Friday. "This has impacted key sectors such as tourism, a vital driver of consumption, and real estate. UK and European visitors are an important source of tourism." In the first quarter of 2016, Western Europe was the second-largest source of tourists to Dubai by region, accounting for 23 per cent, led by the UK's eight per cent and Germany's three per cent. "The general upward US dollar trend will also impact tourism from other non-US dollar-linked economies," she said. The strong US dollar has also contributed to the fall in Dubai's property prices by reducing affordability for foreigners. "We see a weaker private consumption and investment outlook in the UAE following Brexit," Dr Malik said. The weakening in oil prices has been contained so far. "However, we see downside risks as the ramifications of Brexit evolve. This will require a tighter GCC fiscal stance to limit the widening of the deficits and impact sentiment, which had recently risen with oil moving to the $50-per-barrel level," she said. Moreover, with the fall in oil prices and elevated global market uncertainties, foreign borrowing rates for GCC entities will likely increase. This will place more pressure on domestic borrowing and potentially push up interbank rates further. "So far, Saudi Arabia and Qatar have seen the greatest tightening in liquidity, with the Saudi squeeze coming from fiscal deficit funding and Qatar's from the still-strong investment programme," she said. Bahrain and Oman also have large deficit funding requirements, while external borrowing is important for Dubai's investment programme. "However, we now think a Fed rate hike is off the table until there is global market stability and signs that the US economy has weathered the storm. This will remove upside pressure linked to a US rate hike on GCC interbank rates." -
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