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Economic confidence rising in UAE

Economic confidence in the UAE and other Middle East countries rebounded to its highest level since the second quarter of 2015 in sharp contrast to a decline in global confidence level in the same quarter this year, results of survey revealed on Wednesday.

The key factor behind the recovery in confidence in the UAE and the larger region from the second quarter of 2018 is the sharp rise in the oil price, which peaked at $80 per barrel in late-May, compared with a low of $35 per barrel at the start of 2016.

“This has resulted in an increase in revenues coupled with the introduction of VAT in the UAE and Saudi Arabia, which has led to an ease in fiscal austerity,” said the Global Economic Conditions survey released by the Association of Chartered Certified Accountants (ACCA) and Institute of Management Accountants (IMA).

“The global economic recovery that started in late-2016 is starting to slow down and lose momentum, with global confidence in second quarter dipping from its first quarter high. Despite this, across the Middle East and in the UAE, confidence rebounded further in the second quarter of the year and is now at its highest level since second quarter 2015,” the report said.

Analysts at the ACCA said that although it remains high by recent standards, the slight fall in confidence reflects increasing fears of a trade war between the US and China. “This continues to effect global outlook, with China’s economic sentiment falling sharply.”

Despite this, across the Middle East and in the UAE, confidence rebounded further in the second quarter of the year and is now at its highest level since the second quarter of 2015. Lindsay Degouve de Nuncques, head of ACCA Middle East, said the economic outlook across the Middle East and the UAE would continue to be driven mostly by the oil price and changes in fiscal policy.

“The recent Opec deal, which was agreed in late June and saw member countries agree to raise production, is likely to depress prices over the coming months, however with VAT being introduced across the GCC [with the UAE and Saudi Arabia live], it will relieve the pressure that was once felt prior to this fiscal policy being introduced, which will continue to provide economic relief and reduce further oil price dependency on economic growth,” said de Nuncques.

“It’s good to see the improvement in confidence across the Middle East region, and while oil prices are a key factor behind this, expenditure for the 2020 World Expo in Dubai has also helped, along with an easing of austerity, but this diverse region is not immune from global economic shocks and therefore it is advisable that businesses should not be complacent,” said de Nuncques.

Hanadi Khalife, director of MEA and India operations at the IMA, said the results of the survey show increasing business confidence in the Middle East which has been stimulated by continued investments made across a number of key industries.

“This falls in line with the objectives set by governments to achieve long-term regional plans such as UAE Vision 2021 and Saudi Vision 2030. The report shows that government spending is at a multi-year high and this is particularly focused on diversifying regional economies and driving sustainable economic development.”

Narayanan Vaidyanathan, head of business insights at the ACCA, said the net dip in global confidence levels reflects factors such as fears of US-China trade wars more than compensating for other factors such as low employment and tax cuts in the US. The dip was seen both in OECD and non-OECD countries, though confidence in both groups remains relatively high by historical standards.

According to the survey, the introduction of a value-added tax at the start of 2018 in the UAE has pushed up inflation, which will weigh on growth by depressing consumers’ purchasing power. Higher interest rates in the US will also drag on prospects. Because the UAE’s exchange rate is pegged to the US dollar, local interest rates closely track those in the US. The US Federal Reserve has raised rates twice this year already, and is likely to raise them by more over the coming quarters.

A recent study by the CFA Institute revealed that trust level among investors in the UAE’s financial services sector is higher than their counterparts globally. The study finds that investors in the UAE are confident, with 47 per cent claiming they are very confident in their investment decision-making, compared with just 33 per cent of investors globally.

FAB profit up 10% in h1 at dh6.1b

The 2018 first half group net profit of First Abu Dhabi Bank jumped 10 per cent year on year to Dh6.1 billion as the UAE’s largest bank reported on Tuesday healthy asset growth, and significantly lower risk and operating costs.

In a statement, FAB said its second quarter net profit surged 19 per cent year-on-year to Dh3.1 billion with the operating income of Dh9.8 billion keeping broadly in line with a strong first half in 2017 which included opportunistic investment gains.

Abdulhamid Saeed, group chief executive officer of FAB, said FAB has built on the positive momentum generated at the start of the year to deliver another strong set of results in the second quarter. “Our group net profit, which has grown consistently since second quarter 2017, stood at Dh3.1 billion for the quarter, leading to record half year profits above the Dh6 billion mark,” said Saeed.

He said the group’s performance was achieved on the back of healthy asset growth, and significantly lower risk and operating costs, as it continued to capitalise on solid asset quality and provision buffers, as well as substantial synergies realised from the merger.

“At the same time, the reaffirmation of our Aa3 and AA- ratings by Moody’s and Standard and Poor’s, and the assignment of the same ratings to our US subsidiary, are a clear testament to the solid fundamentals and financial strength of our bank. Just recently, FAB made a remarkable entry into The Banker’s Top 1000 World Banks 2018 ranking as the number one bank in the Middle East by capital strength, and the 81st worldwide, emphasising FAB’s significance in the global banking landscape,” said Saeed.

He said in light of a strong first half and as the bank enter the final stretch of its integration journey, FAB is firmly on track to deliver another record performance for 2018. “Despite persistent challenges, the economic outlook over the medium-term remains positive, underpinned by continuous reforms and initiatives to drive growth. In this context, we are fully committed to supporting the stimulus plan recently announced by His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, which will help to accelerate further economic growth and diversification, and enhance Abu Dhabi’s competitiveness and position as one of the world’s leading economic hubs,” he said. FAB said a cost-to-income ratio at 25.7 per cent continued to improve on the back of cost discipline and synergy momentum. Loans and advances rose two per cent sequentially and four per cent year-to-date to Dh345 billion while customer deposits grew seven per cent to Dh 431 billion.

The bank’s liquidity position strengthened further with loans-to-deposits ratio at 80 per cent as the lender maintained healthy asset quality metrics with non-performing loan ratio at 3.1 per cent and provision coverage at 123 per cent.

 

Vacancies likely to weigh on Abu Dhabi house rents

Muted demand, cautious investor sentiment and increased supply weighed on all asset classes in Abu Dhabi. Residential rents and sales prices continued to decline in Q2, according to a report issued by consultancy JLL on Monday.

Apartment rents declined by a further 2 per cent quarter on quarter and 9 per cent year on year, which can be attributed to the continued increase in supply completions at a time when there has been a contraction in employment levels, says the report. Residential vacancies are expected to increase further in 2018, causing further rental declines.

Rents have been negatively impacted by weak demand following job losses and cuts in housing allowances leading to more vacancies. Approximately 650 units were delivered in the capital in Q2 2018. JLL estimates a further 7,000 residential units to enter the market by the end of 2018, mainly within Reem Island, Saadiyat Island and Yas Island. However, a significant proportion of this could be delayed.

Residential sales prices have also continued to fall, with average prices for prime villas registering a 7 per cent decline in Q2 (-19 per cent year on year) and apartments registering a 3 per cent quarter on quarter decline (-9 per cent year on year). However, the three-year Dh50 billion stimulus package announced in June is expected to have a direct impact on the capital’s real estate sector.

“The new government economic stimulus package has positive implications for the Capital with new initiatives directly impacting the real estate market and as with previous government stimuli should lead to an upswing in investment,” said Peter Stebbings, national director and head of Abu Dhabi, JLL. The economic package will lead to reduction in costs for developers and provide dual licences for companies located in free zones to bid for and undertake government tenders outside the free zone, said JLL in its second quarter Abu Dhabi real estate market review. The UAE Cabinet earlier this year also said it would allow 10-year visas for expats and 100 per cent foreign ownership in companies outside of free zones. JLL said these measures would boost sentiment in the Abu residential market, providing expats with more security over their rights to remain in the UAE.

JLL said office rents declined slightly in Q2 as consolidations continued to take place and companies chose to downsize. “Employment levels in Abu Dhabi continue to be affected, specifically in government agencies and financial service entities, placing downward pressure on rents,” the report added.

Healthy, wholesome food is a click away

Manu Mahdi is all set to create a healthy organic world through his startup venture Organic & Real.com. What stemmed from a necessity has turned into a venture that promotes healthy living as a mantra. Organic & Real.Com is one of the largest online marketplaces for certified organic, natural, vegan, gluten-free and free-from range of products, with more than 1,000 items listed across multiple categories. The startup works directly with farmers and certified organic brands to stock fresh and healthy eating options under one roof.

“We started our operations in April 2018, studying the market and upgrading our technology to make buying from Organic & Real an incredible online buying experience. Like any startup, the initial funding has been personal. I want to go for private equity or venture funding for my first overseas expansion to Saudi Arabia, Bahrain and one state in India by mid-2019. I decided to strictly maintain an online store policy to scale up my business to 20 countries in the next five years, with India and Asia as a main focus,” said the CEO and founder of Organic & Real.com.

“By 2020, we plan to expand to the rest of the GCC and more states in India. We have been in touch with potential investors and have been appraising them about the growth and progress to ensure that we are on the right track for a large expansion with solid fundamentals and a foundation built in the UAE.”

Slight change in gold price in Dubai, 22k priced at dh140

Gold prices held steady on Thursday as the dollar eased after US President Donald Trump and European Commission President Jean-Claude Juncker agreed to work towards eliminating trade barriers, easing immediate concerns about global trade tensions.

24k gold is priced at Dh149.25 and 22k can be bought at Dh140.

Spot gold was little changed at $1,231.12 an ounce, as of 0412 GMT. Earlier in the session, the yellow metal hit $1,235.16, its highest in more than a week.

US gold futures for August delivery were 0.03 per cent lower at $1,231.40 an ounce.

The dollar sagged on Thursday and the euro advanced, as the United States and the European Union agreed to begin talks towards easing trade barriers on industrial goods.

Trump on Wednesday agreed to refrain from imposing car tariffs, while the United States and European Union launched negotiations to cut other trade barriers, easing the threat of a transatlantic trade war.

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