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UAE Economy Seen to Rebound in 2010

DUBAI - Propelled by a robust balance of payment position and a vibrant non-oil sector, the UAE economy will be able to rebound in 2010 after its first contraction this year, a leading investment bank said.

UAE’s turnaround will also be spurred by its strong fiscal surplus achieved over the past five years on the back of a record surge in oil revenues, the Kuwait-based Global Investment House said in its latest research released recently.

“The outlook for the UAE in 2009 looks grim in the backdrop of low oil prices, stricter lending requirements by banks and greater caution among investors,” Global said in its 
research report.

The UAE will likely post its first contraction in real gross domestic product, or GDP, in the range of 0.5-1 per cent for 2009 with more of a downside risk, said the report titled “The UAE Economic & Strategic Outlook.”

Global’s GDP forecast appeared more dismal in contrast to a 3.3 per cent growth projected for the nation for the same period by the International Monetary Fund, or IMF, last week. The IMF also forecast that the GDP would recover to an average of around five per cent during 2010-2013.

EFG-Hermes recently said it expected the UAE economy to contract by 1.7 per cent this year.

The UAE Minister for Economy, Sultan bin Saeed Al Mansouri, however, dismissed such forecasts saying that it would be impossible to make an accurate forecast on the country’s economic growth this year amid the 
global meltdown.

The Global report said the UAE government’s increased spending would limit the downside and help reduce the job losses in key sectors. However, such spending “will not be sufficient to fully counteract the contraction in trade volumes, the slowing of consumer spending on the back of population losses, and the severe cutting back of investment plans.”

In last three years (2005-08), UAE’s GDP at nominal prices grew at a CAGR, or compound annual growth rate, of 21.9 per cent, which is one of the highest in the world, the research 
report said.

“Preliminary estimates from the Ministry of Economy indicate that the nominal GDP has grown by 27.4 per cent to reach Dh929.4 billion as the region remained largely unaffected by the economic crisis during the first half of 2008 and grew at an accelerated rate supported by the surge in oil prices. This has come on the back of growth of 16.8 per cent achieved in 2007 when the nominal GDP surged to Dh729.7 billion. The non-oil GDP too witnessed sharp growth and is expected to have grown by 23.4 per cent during 2008,” Global said.

“The GDP in real terms too recorded a growth of 7.4 per cent in 2008, as indicated by preliminary estimates, to reach Dh535.6 billion as compared to a growth of 5.2 per cent achieved in 2007 and 11.6 per cent in 2006,” the report said. The robust economic performance in 2008 was owed to the higher oil prices in major part of the year and boost provided by the non hydrocarbon sector. According to IMF, UAE’s oil reserves are expected to last for at least 100 years and fetch a net of Dh5.8 trillion if current output levels are maintained.

“As per preliminary estimates, UAE’s total imports of goods and services increased to Dh562.6 billion in 2008 while total exports of goods and services increased to Dh746.7 billion, resulting in a trade surplus of Dh184.1 billion in 2008,” the Global 
report said.

Crude oil constituted 36.2 per cent of commodity exports structure in 2008. Re-export comprised 38.8 per cent, free zones exports 11.2 per cent, oil by products 2.5 per cent, gas 4.5 per cent and other exports 6.8 per cent.

issacjohn@khaleejtimes.com