Understand the UAE’s Economy for a more profitable business
Analysis by Philip Mazloumian
UAE Economy – Consumer Confidence
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For reasons that are obvious, consumer confidence is at an all time low across the UAE economy.
Until the release of an effective and trusted vaccine, this is likely to remain in the near term.
Low confidence will reduce consumer spending and business investment holding down economic recovery.
For business owners, please read this article if you wish to learn how to recession proof your company.
UAE Economy – Consumer Price Index (CPI)
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The UAE’s CPI continues its downward trend for October 2020 below the mean average.
This means that a variety of consumer goods are becoming cheaper for residents to buy.
As consumer costs continue to decrease, this should provide financial relief for residents.
If consumer spending begins to increase, this should help fuel business & Government revenues.
But, the impact of Covid-19 continues to linger.
Even with a lowering CPI, business & consumer confidence is still low.
If people and businesses are fearful, the general habit is to reduce non-essential spending and save.
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UAE Economy – Food Inflation
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Food prices are continuing their downward trend across the UAE economy but remain above the mean average.
The cost of food rose in 2020 as the pandemic created supply issues globally.
This burdened residents with higher monthly costs and forced changes to spending habits.
Consumers will continue to hunt for bargains whilst food prices remain high.
UAE Economy – Inflation
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General inflation in the UAE economy is declining well below the mean average.
Prices across a variety of economic sectors have been reducing.
As prices continue to lower, consumers could be encouraged to increase in spending.
Corona is still ‘the Elephant in the room’ holding down business & consumer confidence.
As consumer confidence returns in the long term, we may see considerable inflation.
Consumers and businesses should take steps and prepare now for such an outcome down the line.
UAE Economy – Money Supply
Don’t know what Money Supply is? Click here to learn
As stated above, as deflation in prices levels off in the short term, inflation is likely to return.
The extent of this potential future inflation is harder to predict.
There is a very strong correlation between a nation’s money supply and inflation.
If too much money is in circulation, this can lead to inflation.
The UAE’s economy M2 money supply is the highest it has ever been.
Given the UAE’s peg to the US Dollar, the UAE must increase their money supply to be in-line with the USA.
Again, consumers and businesses should take precautions for future inflation.
One such step would be to include an allocation of Gold & Silver within your portfolio.
This advice is sound for both private individuals and businesses alike.
UAE Economy – Total Foreign Assets
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The UAE’s foreign exchange reserves have been declining in recent months.
Demand for oil and trade has decreased globally due to the pandemic.
The UAE economy is feeling the brunt of this as are other nations in the region.
International trading is generally conducted using US Dollars.
Thus, as oil and general trade lowers, so to does the UAE’s income collected in US Dollars.
Government spending will need to decrease as a result to avoid depleting reserves.
UAE Economy – Gold Reserves
Don’t know what Gold Reserves are? Click here to learn
The UAE has increased their acquisition of Gold in 2020.
Individuals, businesses and nations do this as a hedge against global uncertainty.
This indicator reveals an insight behind the thinking of Government executives.
Most likely their intention is to protect their nation and people’s wealth.
With increasing Gold purchases, it’s clear the UAE is holding their cautious outlook.
Conclusion
The UAE economy is still facing its fare share of challenges.
However, as with any recession, opportunities are abound if residents and businesses are savvy.
My advice is for all to lower non-essential costs, but to also find opportunities for investment.
If you would like to understand how economics can give your business a competitive advantage, please schedule a consultation with me.
