Unprecedented inflation rates in UAE economy

The economic crisis in the UAE is exacerbated into a dangerous phase and is threatened by recession after the last ten months witnessed negative inflation rates in unprecedented indicators, due to the decline of many economic sectors and the decline in purchasing power.

A survey showed that the UAE has not emerged from negative inflation since September 2018, where it recorded a recent bulletin issued by the Federal Competitiveness and Statistics Authority, negative 0.03 per cent in June of this year 2019.

Inflation in May was minus 1.09 percent, 2.9 percent in April, 2.44 percent in March, 0.3 percent in February and 2.39 percent in January.

Inflation in December of last year was 0.3 per cent, in November, 0.48 per cent in October and 0.6 per cent in September.

Inflation had previously been negative in July 2018 at 0.05 per cent, but rebounded to a positive 0.15 per cent before returning to negative territory in September, continuing the same path for 10 consecutive months.

Negative inflation, according to the classification of international financial institutions, including the International Monetary Fund, to the decline in economic activity and low credit, which significantly affects production and pushes into recession and increases unemployment and financial default.

Non-performing loans are expected to rise this year, and banks will resort to mergers to stay competitive, Bloomberg said in a report in mid-January.

Earlier in June, the emirate of Dubai issued a new bankruptcy law to deal with financial failures of companies, while official data in the UAE indicate a decline in the growth rate in light of the shrinking markets and the decline of many sectors, especially real estate, trade and services.

According to the law, the law will come into effect on August 28. “It aims to balance the needs of all parties involved in cases related to financial default and bankruptcy in the Dubai Financial Center.”

Investors’ fears are mounting that the economic sectors, especially real estate, trade and aviation in the UAE in general and Dubai in particular, are being hit hard by the tensions in the Gulf region.

Recently, official data showed the central bank’s foreign assets fell 2.1 percent in July on a monthly basis.

According to central bank data, the bank’s assets fell to 369.3 billion dirhams ($ 100.6 billion) in July 2019. Assets stood at 377.24 billion dirhams ($ 102.7 billion) in June.

Year on year, the bank’s assets rose 11.5 per cent from 332.31 billion dirhams ($ 90.48 billion) in July 2018. The UAE central bank revised the figures and recalculated historical data as of June 2015, excluding Dubai government denominated bonds. In hard currency.

Market indices in Dubai continue to decline. The Dubai Financial Market closed on Thursday, down 0.79 per cent at 2769 points. The shares of 14 companies out of 36 companies traded today, while shares fell 15 companies, 7 remained unchanged.

On the other hand, Abu Dhabi Securities Market closed today, up 0.42 per cent at 5,062 points.

The UAE is facing financial pressures due to the decline in oil prices and political conflicts, which affected the investment climate in the country and its attractiveness in key sectors such as real estate, tourism and banks. While the semi-annual financial results of companies listed on the Dubai Stock Exchange, a significant decline in net profit for a number of key sectors most notably real estate.

A recent report by the US-based economic research organization Recaro also showed that the UAE’s national share fell 3.5 per cent in a row to $ 67,000 a year.

Recaro’s rating is based on the latest data from the International Monetary Fund and the World Bank for each country’s GDP calculations, based on a number of indicators in the country, including local currency exchange rates, purchasing power and inflation.

The report pointed out that the decline of the citizen’s share of GDP in the UAE due to high inflation rates, in addition to the increase in fees and prices of services added by the government, during the past year and early this year, which led to a decline in the purchasing power of the UAE currency and a decline in the share of citizen GDP.

The Dubai bourse posted the biggest decline in the Gulf region, tumbling more than 24 percent, according to a specialist monitoring in January.