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Non-oil sector, oil output set to drive UAE economy
DUBAI — Dubai’s rebounding non-oil sector and Abu Dhabi’s increased oil production will continue to drive the UAE’s performance for the rest of 2011, Standard Chartered Bank said on Sunday as it revised the overall economic forecast on slow project spending.
The bank lowered its gross domestic product, or GDP, growth forecast for Abu Dhabi to 3.4 per cent from four per cent and subsequently revised the overall economic growth of the UAE to 3.8 per cent from four per cent it had predicted earlier.
“Spending on projects in Abu Dhabi has been slow, despite the large number of projects in the pipeline, and this looks unlikely to change this year. We estimate that the value of projects underway dropped to $16.3 billion in 2011 first-half from $18.7 billion in 2010 first-half,” bank analysts Shady Shaher and Victor Lohle said.
They observed that Abu Dhabi’s counter-cyclical fiscal policy of ramping up savings instead of spending was one of the reasons for the lower spending.
Other reasons cited by the analysts for the lower than expected spending in a report entitled “Global problems, regional challenges, local answers,” include Abu Dhabi’s review of its current pipeline of projects and costs and its move to centralise government-related entity, or GRE, projects and borrowing decisions, “having learned from the experience of overcapacity in the region during the economic boom.”
The report pointed out that an Abu Dhabi-based GRE cut its budgeted capital expenditure for 2011 by close to 28 per cent, pointing out that the government is focusing on financial discipline, and that projects may be deferred or adapted to changing circumstances. “This reflects the current dynamics in the Abu Dhabi project market.”
The $1 billion Louvre museum and the $2 billion Marfaq-Ghweifat highway are among the projects delayed this year. The $6.8 billion midfield terminal at Abu Dhabi International Airport, which was due for completion in 2010, will see contracts awarded only towards the year-end.
While spending in the non-oil sector has trended lower, this has been offset to some extent by higher oil production and strong social spending programmes at the federal and emirate levels. In April 2011, Abu Dhabi awarded close to $3.7 billion of contracts to build 7,500 homes for nationals. This month, the Abu Dhabi government announced about $600 million of housing loans to 1,400 nationals.
The UAE’s oil output has risen to 2.6 million barrels per day (mbd) in June from 2.42 mbd in May — an increase of about seven per cent. The UAE currently has production capacity of 2.69 mbd, and this is set to increase to 2.74 mbd by year-end, according to the International Energy Agency.
“Given that production is already very close to capacity, we do not see much further upside from oil output later this year. We estimate that UAE oil output has already increased by 13 per cent in 2011,” the bank analysts said.
The bank maintained that non-oil economic indicators in Dubai look positive, in line with their positive view on the emirate this year.
Exports and re-exports surged by 16.5 per cent in 2011 first half. Dubai’s tourism sector is also doing well, with hotel occupancy above 70 per cent in June (the off-season period in Dubai). Passenger numbers at Dubai International Airport were up 10.4 per cent year on year in June, and rose 8.9 per cent in the first half.
“These figures suggest that this year Dubai’s core strengths of trade and tourism will continue to benefit from the emirate’s excellent infrastructure.”
The bank said Dubai’s property market is also likely to receive a boost from the federal government’s decision to offer extended visas of three years to buyers of properties worth more than $272,000. “The decision will be positive for the Dubai property market in the medium to long term; many expats already live or base their families in the emirate while working in other parts of the region.” Also, prices will be kept in check by oversupply, with at least 10,000 new units expected this year, the report said.
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