MENA Review and Quarterly Outlook

Transcription

1 March 9 th, 213 MENA Review and Quarterly Outlook Blominvest Views on Regional Economic and Financial Developments for Q4 212 View of the Quarter The economies for oil-importers countries remain entangled by political tensions and weakening fundamentals while the oil-exporters countries are performing well and enjoying sound prospects. In Egypt, the new president needs to overcome or compromise with opposition to step further in reforms. Jordan s resources are squeezed and the Syrian exodus is raising unsupported financial expenses. In Syria, an economy of war is reigning and suffered damages already declare a considerable public debt to come. Lebanon is striving to clear out of the minefield while awaiting a milestone this year with the parliamentary elections set in June. On the economic front, a major challenge of dealing with the prospective increase in public wages and its repercussions is awaiting the government. Meanwhile, among oilexporter countries, Saudi Arabia s economy remains solid despite lower contribution from oil sector, UAE is witnessing slow but steady growth rates and Qatar is intensifying efforts to diversify away from oil dependency. HEADLINES 2 Egypt Macro and Equity Market Active Political Scene Puts Tourism and Foreign Aid on Hold 3 Jordan Macro and Equity Market Regional Aid to Reduce Budget Deficit, but Parliamentary Elections Concerns Persevere 4 Lebanon Macro and Equity Market Regional and Domestic Tensions Continue to Weigh Down on the Economy 5 Qatar Macro and Equity Market Diversification Away from Oil Sector is Key to Future Economic Growth 6 Saudi Arabia Macro and Equity Market Economic Performance Remains Solid despite a Deceleration in Oil Sector Growth 7 Syria Macro and Equity Market Battlefields Impose an Economy of War, Casualties and Damages Hit Highs 8 UAE Macro and Equity Market The Recovery q of UAE Economy is Ongoing at a Slow but Steady Rate Marwan Mikhael Maya Mantach Mirna Chami Youssef Chanine Head of Research Research Analyst Junior Economist Junior Economist

2 Egypt Macro and Equity Market Active Political Scene Puts Tourism Growth and Foreign Aid on Hold e 212p , 6, 5, 4, 3, Egypt Stock Exchange Nominal GDP ($, Billion) Real GDP % ch. Egypt s journey through democratic transition remains challenged as secularists defy the new Islamist regime through mass protesting, in a country that counts over 84 mn in population. Albeit the political consensus looks far, the economic reform of the country has started after President Morsi took office in June, supported initially by an international readiness to provide the much needed foreign funds to sustain the country s balance of payments. Egypt s real GDP growth was revised up to 3.5% from 2.2% for Q1 of the fiscal year FY12/13 starting in July and ending in September. Accounting for over 75% of the economy, Household consumption managed to offset many drawdowns seen on the country s net exports and fixed investment levels. Inflation ran at an annual 4.44% by December, according to Egypt s Central Bank s core CPI. In the real sector, tourism to Egypt was hindered by the large scale of public protests and strongly mediatized street clashes, cutting revenues to the state by 2.3% to $2.6 bn. Moreover, revenues from Canal of Suez were muted by the downturn in international trade flows, leading them to decrease by 5.3% to $1.3 bn. Regarding the external position of the country, trade deficit dropped to $6.9 bn in Q1 of FY12/13 from $7.8 bn in the same quarter last year, mainly as a result of declining imports by 5.2% to $13.8 bn. The trade deficit recorded a high $31.7 bn in FY11/12 from $27.1 bn in the prior year. The Egyptian exports are still subdued, but are expected to pick up mainly due to low base effects rather than increased production. Estimations put them at a 7% rise in real terms in FY12/13 compared to a decline of 2.3% in FY211/212. Cutting subsidies of oil is also expected to reduce domestic consumption and free up resources for exports. Despite a narrowing current account supported by the workers remittances, Egypt s balance of payments (BoP) continues to sustain pressures from the trade deficit and heavy outflows from the country. BoP improvement translated through a narrowing deficit of $518.7mn against $2.4bn in the same quarter a year earlier. This was the result of the smaller current account which ran a deficit of $278.9mn in Q1 FY12/13, down from $2.2bn, highly supported by the increase of workers remittances by $839.7mn in parallel to a decrease in imports by $76.4mn. However, net inflows dropped to $443.9mn from $52.4mn, affected by the reduction of the Foreign Direct Investment to $18.1mn. In fact, Greenfield investments in the country amounting to $54.1mn were offset by net outflows from the oil sector reaching $446.8mn. Nevertheless, GCC countries continue to show interest in the country but await improving political conditions and security environment. Negotiations over a loan with the IMF amounting to $4.8bn are still on, and while initial requirements will involve reducing subsidies to oil, the loan will buy time for the country s dwindling foreign reserves. The central bank s foreign reserves stood at $15.4bn in October 212, equivalent to 3 months of imports, down from $36bn in early 211. The FX reserves were stabilized by foreign aid inflows from GCC countries. On the other hand, the banking sector has shown a notable appetite for the government s Treasury Bills (TB), as their consolidated portfolio of TBs accounts for 4.8% of their total assets, which ultimately crowds out private investments. Credit penetration has decreased as reflected by loans/gdp ratio falling to a record low of 33% as of July 212. However the sector remains strongly resilient with deposits accounting for over 7% of total liabilities despite the massive wholesale withdrawals, which leaves strong opportunities for growth. The Egyptian pound remains on a depreciatory track, trading at around 6.7 pounds against the US Dollar, mainly pressured by the pronounced capital outflows from the country and the widening fiscal deficit. The weakening currency is threatening to squeeze the citizens real purchasing power. Despite providing support to the country s exports, the currency s depreciation impact remained more evident on the social stability given the large weight of consumption in the country s GDP compared to exports contribution, and especially in light of weak employment outlook. The equity market surged during 212 recovering by 48.44% with Egypt Index closing at 5,462 points, although the 4 th quarter recorded a 6.17% drop. The market cap stood at $57.9bn with total turnover recording $2.44bn for 33bn traded shares.

3 Jordan Macro and Equity Market Regional Aid to Reduce Budget Deficit, but Parliamentary Elections Concerns Persevere 4 1 Jordan Stock Exchange e Proj. Nominal GDP ($B) Real GDP Growth (%) Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 The continuous citizens protests, setting a new parliamentary elections law, the high unemployment rate and the rising oil prices as well as the Syrian exodus were the main challenges Jordan had to face during 212 and especially during the last quarter of the year. The political reforms presented by King Abdullah II failed to calm his residents complaints and especially the opposition led by the Islamic Action Front (IAF). The Jordanian open-border policy led to the presence of more than 2, Syrian refugees on the Jordanian land. That was one of the main threatening reasons for the economic stability of the country. On a positive note, the interruption of the Egyptian natural gas supplies finally came to its end after almost two years of sabotage on the gas pipelines due to political and technical delays which could slightly reduce the expensive cost of fuel imports. The real GDP growth rate for 212 was estimated at 3% compared to the 2.3% and 2.6% rates attained in 21 and 211 respectively. Nominal GDP increased by 8.65% to $31.4bn comparing to $28.9bn in 211. However, annual average inflation in 212 remained stable at 4.8% comparing to 4.4% in 211 mainly due to the 53% increase in the price of household gas and 12% rise in petrol leading thousands of demonstrators to demand the removal of Prime Minister Abdullah Ensour. Jordan s trade deficit registered an increase of 19.57% y-o-y up to September 212 to $9.41bn, comparing to $7.87bn during the same period last year. According to the Department of Statistics, imports rose by 1.58% to reach $15.37bn while domestic exports and re-export of goods fell.79% and 4.48% to $5.5bn and $.64 bn respectively. The increase in imports value is mainly associated to the interruption of gas supplies by Egypt forcing Jordan to look for alternative sources of energy. As a result, oil imports grew sharply during 211 and 212 by 6.64% and 17.99% respectively. However, imports of oil are expected to fall 6.14% by the end of 213 according to IMF due to the recent reactivation of gas supply provided by Egypt. The revenues generated from tourism increased by 15.3% to $3.5bn in 212 comparing to $3bn in 211 according to the Central Bank of Jordan (CBJ). The improvement was mainly explained by the higher number of Arab visitors especially from the GCC countries adding alone 15.7% to the generated income while 47.1% of the revenues were from other Arab countries. However, tourists arrivals and departures declined during the first 11 months of 212 by 7.21% and 7.85% respectively comparing to the same period in 211. The drop resulted from the ongoing protests of the citizens and the war in Gaza. By the end of 212, Jordan Budget deficit was estimated to be around $2.48bn corresponding to 7.9% of GDP. On the other hand, The IMF Executive Board approved a 36-month Stand-by Arrangement for Jordan amounting to about $2.5bn, in order to diminish the fiscal and external imbalances. The most important step was decreasing the subsidies on fuel products in order to protect the budget from oil prices fluctuations. However, the public debt represented by the end of the fourth quarter 72% of GDP and rose by 19% in 212 to reach $22bn compared to $18.9bn in 211. On the monetary front, the money supply M2 increased by 4.12% y-o-y up to November 212 to register $35.3bn compared to $33.9bn during the same period last year. Foreign currency reserves at the Central bank declined by 42.18% y-o-y to $6.3bn by November 212. In addition, deposits in Jordanian dinar at local banks fell by 6.63% y-o-y to $24.92bn, while deposits in foreign currencies at local banks increased 36.82% to $1.33bn comparing to $26.69bn and $7.55bn in November 211. The regional and domestic instability triggered depositors to shift from the dinar to foreign currencies aiming to hedge their portfolios. As a result, on the 3rd of December, CBJ increased by.75% its overnight rate on dinar deposits to 4% looking forward to attract more local assets. Alternatively, credit facilities of the licensed banks increased by 12% y-o-y to $34.43bn by the end of 212. Amman Stock Exchange (ASE) witnessed a 1.88% decrease of Amman s main index by the end of 212 which is relatively better than the 16% decrease observed the previous year. Performance was negative across sectors with the exception of the industrial sector that slightly rose 2.2%. As for the market capitalization, it narrowed by.47% y-o-y to $27.3 bn by the end of the fourth quarter of 212.

4 Lebanon Macro and Equity Market Shrinking Revenues Increase Pressure on Deficits amidst Tighter Regional Conditions 5 1% p Nominal GDP ($, Billion) Real GDP % ch. % Feb-12 May-12 Aug-12 Nov-12 Lebanon concluded 212 striving to sustain internal and regional threats to its economy. Pressures from the rapidly deteriorating situation in Syria translated into watchful and averse regional and international reactions, shying away business and touristic interest in the region and restricting private inflows. In this context, Lebanon has adopted a policy of neutrality to shield itself from the fiery neighboring but still suffered from occasional security bursts, the greater of which being the assassination of General Wissam El Hassan during October. The real GDP growth for Lebanon in 212 was revised down by most agencies to around 1.6%, with forecasts for 213 hovering around 3%. Economic activity was hindered by the weakening tourism and business sentiment, while the government s finances stumbled on higher international oil prices and limited capacity to enhance revenues. Meanwhile the central bank s solid standing in assets and reserves continued to act as a credible long-term guarantee over the country s capacity to recover and overcome short-term problems. Resources to the Lebanese economy were shortened as tourism suffered a 17.5% fall during the year. Only 1.36mn visitors checked in during 212, the lowest figure reported since 28, with Arab tourists decreasing by 21% following warnings from their embassies to avoid the country. Domestically, local demand showed signs of contraction leaning towards a more cost-rationalizing consumption. For example, new cars registrations, a proxy for durable goods purchases, were up by 21.4% to 35,477 vehicles by the end of 212. However this increase is attributable to the population s switch to lower cost/ fewer fuel consumption cars. Moreover, annual inflation stood at 4.7% after adjusting for the official figure of 1.1% 1., with Q4 inflation recording 1% compared to 2.27% 2 in Q3. Investment levels also dampened in both business and real estate. By year-end, Kafalat loans had dropped 16.4% to $138mn, and guarantees fell by 19% to 1,25. The agricultural and industrial sector lost 46% and 37% respectively, with most regions except for Mount Lebanon seeing a drastic lack of interest. Moreover, and although cleared checks which gauge business spending levels nudged down only by.1% to $71bn, returned checks have increased by 3.5% to $1.5bn signaling greater difficulties faced by merchants. As for the real estate sector, the slowing expansion and selective demand were reflected through a slight decline of 1.25% in the number of construction permits issued up to November as well as the through the construction area per permit that narrowed by 11.5% On the external front, the balance of payments (BoP) benefited from the down-tuning of the local consumption, with the trade deficit in 212 narrowing 4.76% to $15.95bn on 2.75% lower imports of $43bn and 5.14% higher exports of $4.48bn, according to Blominvest adjustments 3. This, in addition to steady and confident remittances from the Lebanese diaspora, assisted in narrowing the BoP deficit by 31.2% to $1.85bn until November from a previous level of $2.68bn in 211, the year that first witnessed its slide into the red zone. Lebanon s fiscal deficit hit $2.6bn in September, rising to 4.9% of GDP from 3.3% last year, worn out by large expenditures. The government s revenues increased by 3.4% to $7.19bn, partially owing to capitalizations made on shifting activity from neighboring countries. However, subsidizing the Electricity Company severely drained the treasury as the larger imports executed at 211 s higher oil prices started to materialize, sharply surging by 54% to reach $1.7bn. Meanwhile a suggested increase in the second largest spending item, the public sector wages, underwent much controversy and was approved by the cabinet but not sent to the parliament yet as the government is still looking into ways of financing it. Lebanon s primary surplus was slashed by half to $65mn from $1.55bn last year, accounting for 1.5% of Lebanon s GDP compared to 3.7% previously. On a more positive front, the banking sector s indicators remained inspiring. The consolidated assets of the Lebanese banks grew 8.4% in 212 to $ bn. Private deposits base increased 8.2% in 212 to $125bn, equivalent to almost 3% of Lebanon s GDP. The Central Bank s foreign reserves (excluding gold) expanded 1.86% to reach $35.74 bn. Broad money M3 also increased 7.87% during 212 to reach $ 14.76B. The equity markets revived in the fourth quarter with the BLOM Stock Index gaining 4.8% after 2 negative quarters, narrowing its yearly losses to.68%. The Lebanese Eurobond market fluctuated during Q4, in accordance with the $1.525bn on Eurobond issuance executed during November and the BLOM Bond Index ended on a.12% loss in Q4, leading its yearly performance to decline 1.7%. The Credit Default Swaps (CDS) for 5 years narrowed to around 45 bps from a mid-range of 462 bps in Q3. 1 The official figure includes a 4% rise applied in July to the housing index in order to reflect the real estate price inflation during Blominvest smoothed the entry over the 3years period to calculate the effective adjusted inflation. 2 Adjusted inflation by Blominvest. Official inflation stands at 8.64%. 3 Blominvest relocated $85mn of oil imports that were included in February 212 but were actually imported and spent during 211.

5 Qatar Macro and Equity Market Matured Gas Industry Spurs Foreign Investment Growth % 15% 9 88 Qatar Stock Exchange p 1% 5% % Nominal GDP ($, Billion) Real GDP % ch. Qatar has positioned itself as a country with one the highest GDP per capita in the world. Not only does this distinction warrant domestic political stability, but also facilitates the shaping of other countries politics. Qatar has been an essential financier and driving force behind the chain of uprisings, collectively termed as the Arab Spring. Real GDP growth is expected to stabilize at a projected 6.1% during 212, considerably lower than the 13% growth in 211 and similar double digit growth registered in previous years. The stalling of growth in the oil & gas sector was responsible for the decrease in real GDP growth. Qatar known for its Liquefied Natural Gas (LNG) production, reached full potential during 212 after having completed all planned investments within the sector. Meanwhile, the manufacturing sector witnessed the greatest growth at an estimated 13.6% as a result of higher gas to liquid (GTL) production levels. Average monthly inflation during 212 remained stable compared to 211, with inflation standing close to 1.9% yoy for both years. The clothing and transportation components witnessed the greatest decrease in prices which were counterbalanced with the increase in prices of the furniture, entertainment, and rent components. Meanwhile, inflation during the last quarter of 212 stood at 2.6% yoy, above the 2.2% yoy registered in the same period during the previous year. Although gas exports ensure that the Emirate maintains a positive current account, lower hydrocarbon production growth levels and greater imports are expected to decrease 212 s current account surplus away from the sizable $52bn registered in the previous year. Third quarter exports and imports stood at $32.6bn and $7.3bn respectively during 212, with the current account reaching $16.6bn. Qatar s government has been extremely active on the fiscal front, with its budget surpluses finding way into both local and international investments. While exact fiscal surplus figures have not been published yet, it is expected that the surplus will reach $14bn in 212 with revenues at an estimated $66 bn and expenditures at approximately $52 bn. Domestically, infrastructure investments have been stepped up in preparation of hosting the FIFA World Cup 222. The country has also managed to diversify away from gas dependence through seeking business venture opportunities abroad via Qatar Investment Authority (QIA), the country s investment arm. On the monetary front, broad money (M2) increased by 29.7% yoy as of November 212, mainly driven by the 19% yoy growth in foreign currency deposits. Interest rate levels remained low, with the lending rate still fixed at 4.5% and the deposit interest rate flat at.8% from the previous year. The banking sector capitalized on low interest levels as total credit up to November 212 increased by 24.6% YTD, outpacing total deposit growth which increased 23.5% YTD. The Qatar Stock Exchange underperformed during 212, especially after having been the top performer amongst GCC stock market in the previous year. The Doha Securities Market Index (DSMI) fell 4.8% to end the year at 8, points. During the last quarter of the year the DSMI declined by 1.8% compared to the 4.8% gain in the third quarter. Daily average traded volume stood at 2.6 mn, 22% less than the 3.3 mn daily average of Q3.

6 Saudi Arabia Macro and Equity Market Steering Away From Oil Dependence Towards Diversity Saudi Arabia Stock Exhange p 3% 25% 2% 15% 1% 5% % Nominal GDP ($, Billion) Real GDP % ch. On the political front, Saudi Arabia remains one of the most stable countries in the GCC. The king appointed Prince Mohamed bin Nayef as its new interior minister last November, as fears that the political instability in neighboring Yemen may have some repercussions on the Kingdom. Internally, protests took place in the Kingdom s oil rich Eastern Province, without impacting crude oil exports. Saudi Arabian Monetary Agency (SAMA), Central Bank, released its preliminary real GDP growth figures for 212 at 6.8%, down from the revised 8.5% registered a year earlier. Meanwhile, inflation levels improved from 5% y.o.y during 211 to 4.3% y.o.y. in 212, primarily driven by the fall in prices of the other expenses & services as well as food & beverage components. The reduction in GDP growth mirrored that of the oil sector which slowed to 5.5% from 1.4% during 212. Oil production levels of the World s largest crude oil exporter had been exceptionally high in 211, as Saudi Arabia exported greater quantities to compensate for the disruption in Libya s oil output. However, the price of OPEC s basket of crude oil averaged $19.5/barrel during 212 compared to $17.4/barrel during 211, bringing in loftier profits at lower output levels. At elevated oil production and price levels, the current account is expected to register 24% of total GDP, down from 27.5% in 211. While no official estimates have been released, the decrease in the current account is anticipated as a result of higher expected imports. On the fiscal front, the Saudi Finance Minister Ibrahim Alassaf declared 212 revenues at $33 bn and expenditures at $227 bn, registering a colossal fiscal surplus of $13 bn. These high levels of expenditures are indicative of the ongoing expansionary fiscal policy the government adopted several years back which aims at diversifying away from oil dependence through carrying out infrastructure-heavy investments. The massive fiscal surplus in 212 translated into asset growth on SAMA s books, with foreign assets boasting a $1 bn gain from year start to register an all-time high of $648 bn during November. Investment in foreign assets, representing two thirds of total assets, surged by $59 bn, while deposits held with banks abroad rose $27 bn up to November of last year. Money supply (M3) growth decreased from 13.3% y.o.y in 211 to 11.4% y.o.y. up to November 212. Likewise, growth in currency outside banks also shrunk from 25.5% y.o.y. to 1.8% during the same period. Given these favorable conditions, private sector lending increased by 15.2% y.o.y for the first 11 months of 212. Meanwhile, public sector lending contracted by an annual 2% for the same time period. Overall, the growth in credit outpaced that of total deposits which increased by 9.3% y.o.y up to November of 212. The Saudi stock exchange rebounded during 212, as the Tadawul All Share Index (TASI) gained 5.98% y.o.y. to close at 6,81.22 points, compared to 211 s annual loss of 3% which ended at 6, points. During the last quarter of the year, the TASI slid marginally by.56% to an average level of 6,782 points. The daily average traded volume stood 16 mn during the fourth quarter, down 31.46% from that of the third quarter.

7 Syria Macro and Equity Market Battlefields Impose an Economy of War, Casualties and Damages Hit Highs 8 8 Damascus Stock Exchange Nominal GDP ($, Billion) Real GDP % ch. After 22 months of escalating battles between the regime and rebels over power, Syria is officially running an economy of war. The dual fronts of controlling territories while retaining resources and local support are exhausting the economic sustainability factors. Meanwhile, the human fatalities and the destructed capital reached sorrowing levels. Both sides are seeking reinforcing edges to conclude the situation, although international stands are aligning to isolate the regime. The opposition represented by The Syrian National Coalition gained further recognition towards the end of 212, which might open the gates for material diplomatic and financial support. Meanwhile, the regime is deploying alternative strategies in the country to face the funds shortage, while relying on its limited allies, namely Iran and Russia, to withstand and replace damages. Losses in human lives exceeded 6, since the beginning of the revolution in March 211, according to the United Nations. Official registries alone show that displaced citizens and refugees in the neighboring countries count over 57,, most of whom face critical humanitarian issues for which Jordan and Lebanon have called upon the International community to support. As for the Syrian residents, around 6mn citizens suffered severe deterioration in their welfare and living conditions, due to the loss of around 1.5mn job opportunities by the end of 212. Economic losses from the conflict were estimated at $48.4bn by end 212, equal to 81.7% of the country s GDP in 21, due to war-hit sectors, zipping revenues, increased expenditures and capital stock damages. Despite the blackout of information and the empirical limitations, most sources consent over an estimated loss in GDP of 3% to 4% in 212, equivalent to $2bn, and forecast a further 18% drop in 213. The war resulted in sabotaged facilities and destroyed firms, equipment and buildings estimated at $2.8 bn. Inflation continues to run at a high pace reaching 4%. Oil production curtailed by 47% and oil embargo imposed by the EU has depressed revenues from this sector that once contributed to 23% of Syria s GDP and to 45% of its budget income. Currently, oil production halved to around 2, barrels a day assuring only 2-3% of the government revenues. Tourism proceeds also vanished, reducing the GDP by 11%, or an estimated revenue loss of $8.9 bn. Sanctions against money transfers depleted remittances to Syria, which averaged $8 mn annually, losing the country an important social safety net. The external position of the country faces many crippling challenges, from the western countries blocking Syria s access to the financial systems to the domestic production halts and inconsistencies. Only few friendly countries remain on Syria s export list, and the State s efforts are concentrating on reducing customs taxes and extending payments deadlines to encourage exports and the obtaining of the hard currencies as well as boosting tax compliance to enhance revenues. The collapsing revenues and unforeseen expenditures have also led to a fiscal shock in Syria, resulting in the budget deficit surging to 4% of GDP in 212. In 213 s budget forecasted at $19.62 bn, the government allocated a rise of 13% in public sector wages along with a 25% increase in subsidies on staple foods, fuel and agriculture, in order to maintain population support and state governance. In light of the current situation, an increased military spending has also been accounted for. On the monetary side, the central bank of Syria was forced to depreciate the official value of the Syrian pound by 67% until December 212, aiming at limiting the speculation against the pound, while simultaneously promoting non-oil exports. The Syrian pound was last trading at 79.29/79.77 against the US dollar, while unofficial markets traded the Syrian pound at 1 against the US dollar. Printing money remains a far-fetched scenario because of its impact on the already high inflation. However, foreign reserves at the central bank have severally declined from over $18bn in 21 to an estimated $1-2 bn by the end of 212. The war tide did not spare the stock market. Damascus Security Exchange (DSE) Index dropped 5.77% during the 4th quarter to close at points. The bourse opened 38 days with total transactions amounting to 597, involving a total volume of 1,35,17 shares worth $1.5bn. Market capitalization as of 31 Dec 212 stood at $932mn, against $1.65bn in Dec 211. Over the course of the year, Damascus Index lost a total of 13.31% during 145 days of activity, after losing 49.42% during 211.

8 UAE Macro and Equity Market Actions to Stimulate the Steady Economic Growth with Encouraging Tourism Revenues 4 1 UAE Equity Markets e 213f Nominal GDP ($B) Real GDP Growth (%) Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Dubai Last Close Abu Dhabi Last close The United Arab Emirates maintained a stable political environment away from the Arab Spring revolution during 212. However, the Federal National Council (FNC) declared in October that the Muslim Brotherhood in the UAE does not represent the country s interests and could be perilous to the nation with their adherence to outside powers. FNC also proposed a dress code law banning tourists and residents from wearing revealing clothes in public. On a positive note, 212 was marked by persistent growth in the United Arab Emirates due to several efforts to reduce Dubai s 29 crash consequences. The Emirate is aiming to set a new foreign investment law that allows citizens from 5 other GCC to create businesses with foreign partners without having to include local shareholders. This law could stimulate the recovery of its housing market by attracting more foreign capital. The fourth quarter showed the continuous efforts of Abu Dhabi to diversify its economy away from oil through development projects in the manufacturing and logistics sectors worth $9 bn, over the next five years. Real GDP growth was estimated by the International Monetary Fund (IMF) to stand at 4% in 212 relatively lower than the 5.2% recorded in 211 with non-oil sector GDP rising by 3.3%. Inflation in UAE fell to.7% in 212 from.9% in 21 and 211. Looking at inflation for the two main Emirates in 212, the consumer price index (CPI) in Abu Dhabi rose 1.1% from points in 211 to points, whereas Dubai CPI declined by 2.17% y-o-y in November 212. As for the performance of the tourism industry, the traffic report released in November 212 for Abu Dhabi International Airport registered a 19.3% yearto-date increase in the number of passengers to stand at mn travelers compared to the same period in 211. In Dubai, one of the most popular tourist destinations in the world, an increase of 13.2% in passenger traffic was noticed by the end of 212, according to Dubai International Airport. Passengers number rose to mn in 212, up from 5.98 mn during 211. On the external level, UAE trade surplus slightly widened in 212 compared to the previous year from $45.3 bn to $45.8 bn. Imports and exports in UAE rose by 8.14% and 7.5% to $267 bn and $313 bn, respectively. The Statistics Centre of Abu Dhabi (SCAD) reported that non-oil goods trade valued $3.2 bn in September 212 On the fiscal level, the United Arab Emirates revenues, amounting for 36.1% of GDP, rose by 9.1% in 212 compared to a 4.5% growth in 211. According to the IMF figures, the general government revenues are expected to slow down during 213 increasing by.22% on a yearly basis. On the expenditures side, the government tried to hold its payments growth that accounted for 24.1% of GDP in 212 and increased by 3.1% in 212 compared to 16.7% during the previous year. UAE s net debt continues its downward trend that started in 21 to reach 16.5% of GDP compared to 17.8% in 211 and 22.3% in 21. On the monetary front, M2 rose 3.9% in the third quarter of 212 comparing to the same period last year to $23B and 2.4% since year start, representing an improvement of liquidity on the market through the increase of clients deposits in local banks that expanded by 3.3% during Q3 to $311.2 bn compared to a 1.9% increase during the same period last year. Loans to customers increased 1% during Q3 to $ 71.2 bn, while Government loans rose 5.3% to $32.7 bn. Real estate loans also grew by 4.4% to reach $68.3 bn. In contrast, corporate loans dropped.2% to $17.8 bn by the end of the 3rd quarter. As for Net Foreign Assets (NFA), they surged from $125.5 bn to $134.6 bn during Q3. With respect to the stock market, Dubai index increased 2.37% in 212 even though it registered a slight decrease of.63% during the last quarter of the year. All sectors ended the year on a positive note with a significant jump of 144% in the Telecommunications sector. The total trading volume and value increased by 62% and 52% to 4.46 B and $13.22B respectively. The market capitalization widened by 1% y-o-y to $33.67B by the end of the year. In Abu Dhabi, the index rose 4.72% in the 4th quarter and 9.52% y-o-y by the end of 212. Consumer staples and real estate were the top performers in Abu Dhabi stock exchange increasing by 49.46% and 42.38%, respectively. As for market capitalization, it widened by 1% on a yearly basis to $ 69.43B.

9 BLOMINVEST BANK BANK s.a.l. Research Department Verdun, Rashid Karameh Str. POBOX Riad El Soloh Beirut Lebanon Tel: Fax: research@blominvestbank.com For your Queries: Marwan Mikhael, Head of Research marwan.mikhael@blominvestbank.com Ext: 36 Maya Mantach, Research Analyst mayamantach@blominvestbank.com Ext: 379 Mirna Chami, Junior Economist mirna.chami@blominvestbank.com Ext: 363 Youssef Chahine, Junior Economist youssef.chahine@blominvestbank.com Ext: 1248 IMPORTANT DISCLAIMER This research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. BlomInvest SAL can have investment banking and other business relationships with the companies covered by our research. We may seek investment banking or other business from the covered companies referred to in this research. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. We and our affiliates, officers, directors, and employees, excluding equity analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice. The price and value of the investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Copyright 212 BlomInvest SAL. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of BlomInvest SAL.