UAE shows economic stability despite potential impact of Fed Rate decisions and upcoming U.S. elections

Dubai, 10 July 2024 - Despite an air of uncertainty stemming from the US Presidential Elections and recent U.S. economic indicators demonstrating a decline in leading economic activity metrics, the UAE economy has been holding up with the latest CPI year-over-year figure decreasing from a six-month high of 3.91% to 3.81% at the second half of the year. Meanwhile, the U.S. CPI year-over-year has fallen from 3.4% to 3.3%.

Expecting a sluggish growth of commodity prices, wages, rents, as well as the increase of the UAE Dirham due to a strong US Dollar that could consequently moderate levels of inflation further, the CBUAE's June 2024 outlook revised the 2024 inflation forecast down from 2.5% to 2.3%.

Razan Hilal, Market Analyst at FOREX.com comments: “With this and a slew of global economic uncertainties, the UAE economy stands resilient showing strong capital adequacy ratios, increasing foreign investments and a diversified economic core.” The country is poised to achieve the CBUAE's growth projection of 3.9% for 2024 and over 6% in 2025. Hilal adds, “Current economic developments foster a bullish market sentiment though it stands to be acknowledged that the U.S. elections in November may alter this trajectory, calling for a cautious economic outlook for the UAE.”

Over in the US, key statistics show disinflationary trends such as the down-trending consumer price inflation figures and the PCE - the Fed's preferred inflation gauge - reaching a 3-year low. The ISM Manufacturing PMI has recorded three consecutive drops below expectations while the ISM Services PMI has declined from its 9-month high to levels seen during the 2020 pandemic.

The latest Fed statements however, stress the need to gather further data to confirm these disinflationary trends, cautioning that premature actions such as rate cuts could reignite inflationary pressures. Steadily though, as data aligns with the Fed's inflation target, the S&P 500 and NASDAQ have reached record highs while the UAE MSCI has shown a positive three-week rebound from annual lows.

Going back to the aforementioned ‘hot topic' of the imminent US Presidential Elections, much needs to be seen with regards to the current inflation trajectory. Should former US President, Donald Trump, who is no stranger to controversy and who may, just as controversially, change monetary and fiscal policies, taxation, job market growth, immigration, environmental regulations and war stances, be re-elected as President, levels of inflation could be skewed off the charts, as noted by Reuters and 16 Nobel-Prize-winning economists.