shock for the first time in decades — not just from the war in Ukraine , but also from the Middle East .”
“ Higher oil prices , if sustained , inevitably mean higher food prices ,” said Ayhan Kose , the World Bank ’ s Deputy Chief Economist and Director of the Prospects Group . “ If a severe oil price shock materialises , it would push up food price inflation that has already been elevated in many developing countries . At the end of 2022 , more than 700 million people — nearly a tenth of the global population — were undernourished . An escalation of the latest conflict would intensify food insecurity , not only within the region but also across the world .”
The fact that the conflict has so far had only modest impacts on commodity prices may reflect the global economy ’ s improved ability to absorb oil price shocks . Since the energy crisis of the 1970s , the report says , countries across the world have bolstered their defences against such shocks . They have reduced their dependence on oil — the amount of oil needed to generate US $ 1 of GDP has fallen by more than half since 1970 . They have a more diversified base of oil exporters and expanded energy resources , including renewable sources . Some countries have established strategic petroleum reserves , set up arrangements for the coordination of supply and developed futures markets to mitigate the impact of oil shortages on prices . These improvements suggest that an escalation of the conflict might have more moderate effects than would have been the case in the past .
Policymakers nevertheless need to remain alert , the report said . Some commodities — gold in particular — are flashing a warning about the outlook . Gold prices have risen about 8 % since the onset of the conflict . Gold prices have a unique relationship to geopolitical concerns : they rise in periods of conflict and uncertainty , often signalling an erosion of investor confidence .
“ If the conflict escalates , policymakers in developing countries will need to take steps to manage a potential Social and business-friendly increase in headline inflation . reforms and the UAE ’ s safe-haven Given the risk of greater food status continue to attract foreign insecurity , governments should inflows of capital and labour avoid trade restrictions such as export bans on food and fertilizer . Such measures often intensify price volatility and heighten food insecurity . They should also refrain from introducing price controls and price subsidies in response to higher food and oil prices . A better option is to improve social safety nets , diversify food sources and increase efficiency in food production and trade . In the longer term , all countries can bolster their energy security by accelerating the transition to renewable energy sources which will mitigate the effects of oil price shocks ,” said the World Bank .
UAE in focus
A staff team from the International Monetary Fund ( IMF ), led by Mr . Ali Al-Eyd , visited the United Arab Emirates from 25 September to 3 October 2023 to discuss economic and financial developments , the outlook and the country ’ s policy and reform priorities . At the conclusion of the mission , Mr . Al-Eyd issued the following statement :
“ The economy continues to grow , benefitting from strong domestic activity . Non-hydrocarbon GDP growth is expected to exceed four per cent this year and to remain at a similar pace in 2024 , driven by tourism , construction and real estate-related developments . Social and business-friendly reforms and the UAE ’ s safe-haven status continue to attract foreign inflows of capital and labour , underpinning growth and contributing to elevated real estate prices , particularly in high-end segments .
“ Following the OPEC + production cuts , hydrocarbon GDP growth is expected to slow in 2023 , but to accelerate next year with the UAE ’ s 2024 OPEC + production quota increase . Overall real GDP is expected to grow around 3.5 per cent this year . Average inflation will remain contained at around three per cent in 2023 , down from 4.8 per cent in 2022 ,” he continued .
“ Fiscal and external surpluses remain high on the back of high oil prices . The fiscal balance is expected to be around five per cent of GDP in 2023 , driven by oil revenue and strong economic activity . The phased introduction of a corporate income tax that began in June 2023 will support higher non-oil revenue over the medium term . Public debt is projected to continue to decline , falling firmly below 30 per cent of GDP in 2023 , including with the benefit of the Dubai Emirate reducing its public debt by 29 billion dirhams in line with its Public Debt Sustainability Strategy . The current account surplus is expected to be notably above the medium-term level in 2023 and 2024 ,” he added .
He cautioned that rising real estate prices and tighter financial conditions underscore the importance of continued close monitoring of financial stability . The outlook , he added , remains subject to heightened global uncertainty . A decline in oil demand and reduced global trade and tourism from slower global growth , higher-for-longer interest rates , tighter financial conditions or geopolitical developments would weigh on growth and pressure fiscal and external balances . However , higher oil prices and healthy fiscal buffers help mitigate risks , while reform efforts pose upside risks to growth .
“ The UAE ’ s sustained reform efforts support medium-term growth and a smooth energy transition , but prioritisation and sequencing remain key to ensure effective outcomes . Advancing a medium-term fiscal framework , underpinned by careful coordination of emirate-specific fiscal anchors and rules , would promote long-term sustainability and help meet climate policy challenges . Ongoing efforts to boost private sector employment , further develop the domestic capital market and leverage trade and investment in digital and green initiatives will further advance diversification and lift medium-term growth . Building on recent improvements in economic data collection , sharing and dissemination will buttress these efforts ,” he concluded . n
42 | ismr . net | ISMR November 2023