The policies enacted to contain the coronavirus outbreak and the indirect impact of the pandemic on global growth and trade conditions pose a significant shock to economic growth in the UAE (Aa2 stable), especially as they follow a cyclical and structural slowdown in the non-oil economy in 2019 and coincide with the significant drop in oil prices, according to top ratings agency Moody's.

Among the UAE’s emirates, the negative growth and fiscal implications are most acute in Dubai, while it faces the greater risk of its government-related entities (GREs) requiring financial support as a result of the deterioration in economic conditions, said the report.

The coronavirus outbreak is a major shock for the UAE's open economy. Travel restrictions, quarantines, the closure of schools, factories and businesses as well as a fall in global demand is inflicting substantial challenges to sectors like tourism, trade and real estate which account for over half of the UAE's total GDP and just under half of nonoil GDP, and an even greater share of Dubai's non-oil economy, stated the report.

The virus and the public health measures to contain it have also drastically reduced global oil demand, depressing prices, although directly this will directly impact Abu Dhabi and only indirectly Dubai and the northern Emirates.

Fiscal stimulus measures will soften the blow on business and the banking system, but are not be sufficient to offset the demand shock. Modest fiscal support has been announced at Federal and Emirate level.

Dubai's Dh1.5 billion (0.4% of Dubai's GDP) three-month stimulus package incorporated specific measures to support the hospitality sector, while Abu Dhabi (Aa2 stable) expanded its Ghadan 21 stimulus package by 1.2% of GDP to include a credit guarantee scheme for SMEs, citizens income and support to its tourism sector, said Moody's in its report.

However, the majority of support has been provided by the UAE central bank, which announced stimulus worth Dh256 billion ($70 billion) which should ease pressure on businesses and support bank liquidity, it stated.

However, the demand shock from coronavirus will be significant, especially as growth in the non-oil economy had already slowed to historic lows before the coronavirus outbreak, it added.

According to Moody's, Dubai is most exposed to contingent liability risks via its GREs, while Abu Dhabi and Sharjah (Baa2 stable) are more insulated. Dubai's GRE debt remains most exposed to these macro risks because of its holdings in the real estate, transportation and tourism sectors.

Abu Dhabi's GRE exposure is primarily concentrated in the hydrocarbon sectors, which face challenges from lower oil prices but have strong starting financial positions.

Sharjah’s GRE exposure is dominated by utilities which are broadly insulated from the impact. However, contingent liability risks for all emirates will increase the longer the impact of the pandemic endures, it stated.

The top ratings agency pointed out that the coronavirus shock represents a significant shock to the open UAE economy. "While we expect the vast majority of sovereigns that we rate to suffer a severe GDP contraction from the coronavirus outbreak, the UAE is particularly exposed to the economic implications of domestic containment actions and the broader global economic shock," it stated.

The most direct channel will be the impact of public health policies to contain the outbreak like travel restrictions, quarantines and the closure of schools, factories and businesses on sectors like tourism, transportation and hospitality, it added.-TradeArabia News Service