The GCC economies recorded a sharp slowdown in 2016 amidst public sector spending cuts, tightening liquidity and investor uncertainty, a report said, adding that growth is expected to improve in 2017 across the GCC states, except in Oman and Bahrain.

According to the global and regional economic outlook and sector analysis of Coface, the worldwide leader in trade credit management solutions and risk information services, all GCC countries except Kuwait, had seen economic contraction in 2016.

The Coface analysis shows that UAE growth will pick up in 2017 to reach 2.5 per cent up from 2.3 per cent in 2016 because this country is more diversified from oil than its neighbouring GCC countries.

Saudi Arabia’s economic growth is expected to accelerate to 1.8 per cent in 2017 from 1.3 per cent in 2016.

For Qatar, its huge financial reserves and still-strong revenues from its gas sector will ensure continued public sector spending ahead of the Fifa 2022 World Cup. This will keep the country’s growth trajectory relatively high in the region. Qatar’s economic growth is forecast to be 3.3 per cent in 2017 up from 2.6 per cent in 2016.

The Bahrain economy will shrink further going down to 1.7 per cent in 2017 from 2 per cent in 2016. Growth in Oman will also dip slightly again to be 1.7 per cent in 2017 from 1.8 per cent in 2016, the report says.

Kuwait’s economy had more than doubled from 2015 to 2016 going from 1.1 per cent to 2.4 per cent. In 2017, the country will grow more and reach 2.6 per cent.

Slight recovery with challenges ahead

Massimo Falcioni, CEO of Middle East Countries at Coface, said, “The UAE has remained relatively resilient in the face of lower hydrocarbon prices because of its economic diversity, but the lower oil revenues left government spending constrained and this had a spillover effect on all economic activities. The slight rise in oil prices now should give a corresponding impetus to the UAE economy.”

“Abu Dhabi, being the most oil-dependent emirate will continue to see a slowdown in 2017. Dubai should be more resilient but some non-oil economic activities could still falter. Overall, the country’s growth will be driven by the tourism and financial sectors, while difficulties in the construction sector will remain,” Falcioni said.

“The stable political and security climate of the UAE helps it stand out in the region.  The country’s business climate, already the most favourable in this region, is improving further. The expected passing of the new UAE insolvency law will make the country still more business-friendly, giving companies in difficulty a reliable mechanism to restructure their operations,” said Falcioni.

The UAE was rated the top country in the Mena region in ‘Doing Business Ranks, Most Improved Globally’, according to a World Bank report published at the end of October last year. According to the World Bank, the UAE led the GCC in terms of the number of reforms implemented and it jumped 39 ranks in the reform category of ‘Protecting Minority Investors’.

Delay of payments

Liquidity remains an issue. In the UAE, there is a 4 per cent rise in delay of payments, because of a lack of bank lending and a liquidity crunch.

"Notifications of overdue have increased in key sectors of the country’s economy. Comparing figures of third quarter 2016 from the previous quarter of the same year, the highest increase of overdue notifications in the UAE was registered from the metal traders and building materials or construction sector (+26 per cent), followed by the general trading sector (+22 per cent)," Falcioni reported.

Based on Coface’s monitoring activities of 23,000 companies in the UAE and Saudi Arabia, a total of 814 runaway cases of UAE-based businesses was registered from Q3 2015 to Q4 2016 (six quarters), yielding a 200 per cent increase from the previous year. More than half (55 per cent) of these runaway cases were businesses in the general trading sector.

Nevertheless, UAE is still in a stronger position compared to most other nations in the region due to the diversified economy and political/governance stability. In a Coface country risk of business defaulting assessment overview published in January, the UAE is categorised as A4 (acceptable risk). The overall Middle East sector risk assessment is that three-fourths of the region’s sectors are considered “high” or “very high” risk.

Global growth and protectionism

Globally, growth weakened for the second consecutive year in 2016 to reach 2.5 per cent based on Coface data.

A slight improvement (+2.7 per cent) is expected for 2017 especially with the upturn in activity for emerging economies (+4.1 per cent, up from +3.7 per cent) and the economic recoveries in Brazil and Russia which will offset China’s gradual economic deceleration. Activity in advanced economies will hold steady (+1.6 per cent), with the slowdown in the United Kingdom being compensated for by the resilience of the eurozone and the slight improvement in US economic activities.

In 2017, the trade may be negatively impacted by protectionism which is the stated policy of the recently elected Republican government in the US.

“Any business that is not strictly limited to local boundaries should protect its trade credit. Risk management and trade credit protection are vital for businesses to deal with any liquidity squeeze arising from unforeseen developments,” Falcioni added.

“Oil prices are not expected to return to the previous high levels immediately, that is why public spending in the GCC will remain cautious. A wide range of factors that would impact regional and global consumption patterns calls for greater measures to protect business assets,” Falcioni concluded. – TradeArabia News Service