Despite uncertainties from the US Presidential Elections and recent economic indicators showing a decline in leading economic activity metrics, the UAE economy has remained stable with the CPI year-over-year figure decreasing from 3.91 per cent to 3.81 per cent. This is in contrast to the US, where the CPI year-over-year has fallen from 3.4 per cent to 3.3 per cent. Expecting slow growth in commodity prices, wages, rents, and a stronger US dollar affecting the UAE dirham, the Central Bank of the UAE revised its 2024 inflation forecast down from 2.5 per cent to 2.3 per cent in June.
Market analyst Razan Hilal from Forex.com noted that the UAE economy is showing resilience despite global uncertainties, with strong capital adequacy ratios, increasing foreign investments, and a diversified economic core. The country is on track to achieve the CBUAE’s projected growth of 3.9 per cent for 2024 and over 6 per cent in 2025. However, with the upcoming US elections in November, there is a need for a cautious economic outlook for the UAE, recognizing that changes in the US political landscape could impact the trajectory of economic growth.
In the US, there are disinflationary trends evident in key statistics, such as declining consumer price inflation figures and the PCE reaching a three-year low. The ISM Manufacturing PMI has seen three consecutive drops below expectations, while the ISM Services PMI has declined from its 9-month high to levels seen during the 2020 pandemic. Despite this, the latest Fed statements emphasize the need for further data to confirm these trends and caution against premature actions like rate cuts, which could reignite inflationary pressures.
As data aligns with the Fed’s inflation target, there has been a positive rebound in the stock market, with the S&P 500 and Nasdaq reaching record highs. The UAE MSCI has also seen a positive three-week rebound from annual lows. Looking ahead to the US presidential elections, the current inflation trajectory is closely monitored. If Donald Trump is re-elected, levels of inflation could potentially increase significantly, as noted by Reuters and 16 Nobel-Prize-winning economists. It is essential to observe how the election results may impact inflation rates in the future.
