(MENAFN- Khaleej Times) The direct impact of lower oil prices on the UAE is more muted than for GCC peers in the near term, but its indirect impact through lower regional and domestic liquidity should not be overlooked, BofA Merrill Lynch Global Research said on Monday.
If oil remains low for long, its indirect impact will be more pronounced on real estate, external sector and indebtedness, the research report argued.
However, analysts at Barclays are of the view that within the GCC, the UAE is better equipped to cope with potentially prolonged weakness in oil prices given its diversified economy and solid buffers.
"In the near-term, we think Dubai should be able to tackle refinancing challenges, but the possible increase in government external borrowing needs is set to take place against a more challenging backdrop," BofA Merrill Lynch said.
The rebound in Dubai's real gross domestic product, or GDP, growth to a 4.5 per cent pace since the bust has been broad-based, the report noted.
The BofA Merrill Lynch report said the UAE fiscal and external break-even oil prices, at $77/bbl and $60/bbl respectively also suggest a degree of relative comfort versus GCC peers.
The bank's break-even price estimates are lower in comparison with Barclays which puts the UAE's external break-even oil price around $64 per barrel and fiscal break-even oil price at $79/bbl.
"The non-oil sector as a share of real GDP is broadly in line with the GCC weighted average, but the oil dependency in fiscal and external accounts is lower than its peers. This has much to do with Dubai's economy, given Abu Dhabi's oil dependency is in fact more elevated than the GCC average."
BofA Merrill Lynch report said construction and real estate still account for 21 per cent of the UAE real GDP, 10 percentage points below the 2008 peak, and grew by 3.5 per cent year on year in 2013.
The financial sector represented 11 per cent of GDP in 2013, with a broadly stable share.
Regional petrodollar liquidity has increased the share of non-resident deposits in total deposits in the UAE banking sector from 5.3 per cent in first quarter to still just 9.4 per cent in second quarter.
The report predicted a potentially more refinancing task for Dubai due to the combination of increasing government borrowing needs (World Expo 2020 committed pipeline, in particular) and a less supportive global backdrop amid still elevated debt stock and rollover needs.
The bank observed in its report that the large government and public sector deposits in the banking sector (13 per cent of total each) suggest some liquidity tightening at current oil prices.
The impact of falling oil prices on the UAE's external and fiscal positions is likely to remain manageable with the current account surplus to remain at 12.3 per cent and 6.8 per cent of the country's gross domestic product respectively, in 2014 and 2015, the bank said in an analytical study.
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