UAE to Rebound with 2.5pc Growth, says Shuaa

DUBAI — The UAE economy will rebound this year with a 2.5 per cent growth, mostly driven by Abu Dhabi, a leading Dubai-based investment bank said on Monday.

By Issac John

Published: Tue 19 Jan 2010, 11:34 PM

Last updated: Mon 6 Apr 2015, 4:49 PM

The predicted growth in the country’s gross domestic product (GDP) follows a 3.5 per cent year-on-year contraction the UAE had recorded in 2009, Shuaa Capital said.

“This growth will largely be driven by strong projected real GDP growth of 4.1 per cent in Abu Dhabi. The Capital will benefit from a recovery in oil prices and output this year, as well as strong growth in the non-hydrocarbon sector, which will be supported by government investment and spending,” Shuaa said in its research report, “the UAE Vision 2010.”

The Dubai economy is forecast to perform better than last year with a slight contraction of 0.4 per cent year-on-year in 2010, after a five per cent shrinkage in 2009 “as the key construction and real estate sector continues to be a drag on growth in the emirate,” said the report’s author, Dr Mahdi Mattar, who is also Head of Research and Chief Economist at Shuaa.

In the real estate sector, Shuaa expects Dubai to see another 10 per cent drop in residential sale prices, mainly due to a drop in demand as a result of the continued decline in the expatriate population.

Shuaa estimates that Dubai’s population shrank by nine per cent in 2009 and will decline by another 3.6 per cent this year.

“An additional 26,650 apartments and villas are expected to enter the Dubai market in 2010, which will put more pressure on the oversupply issues that already exist,” said Dr Mattar.

In Abu Dhabi, Shuaa expected the residential shortage to continue, despite the addition of 23,000 units expected to enter the market over the next two years. The capital was also unlikely to see the steep price and population drops experienced in Dubai, the report said.

The UAE capital markets are expected to record gains of around 20 to 25 per cent in 2010. “We believe that our forecast will be supported by corporate earnings growth, other positive corporate news flows, and improved investor sentiment post Dubai World’s debt issue resolution,” Dr Mattar added.

A resolution of the Dubai World debt will be the main catalyst for this growth, said Dr Mattar.

“In six months we will have a resolution and [it] will not be a hostile resolution. The main assumption behind this statement is because the Dubai government is doing the negotiation and not Dubai World the commercial entity.”

“The Dubai government is taking a broader picture when doing the negotiations and is looking at the effect on the economic growth in Dubai and the effect on the reputation of Dubai with international capital markets and local banks,” he added.

“The banking sector will continue to witness slower balance sheet growth as well as deterioration in asset quality. Customer deposits are expected to rise eight per cent, resulting in an additional net increase in liquidity of Dh84 billion. Lending is not expected to match deposits and will likely to only see six per cent growth,” the investment bank said.

Banks are expected to see a recovery in earnings of up to 10 per cent. However, this is following a 15 per cent decline seen throughout 2009. Non-performing loans (NPL) are expected to account for eight percent of loans in 2010, although Mattar believes that this year the focus of the NPLs will move away from consumer loans and mortgages and more towards outstanding corporate debts.

“Abu Dhabi banks will witness double-digit growth while Dubai banks will suffer either from a continued decrease in earnings or a relatively flattish forecast. The telecommunications sector will again remain resilient with earnings affected only slightly,” Dr Mattar said.

Shuaa said after almost a year and half of absence of IPOs, it expects 2010 will see the resurrection of IPOs in the country. “Once the Dubai World’s debt restructuring negotiations are over, and assuming a relatively investor friendly outcome is reached, the appetite for primary issuance will be restored.”

However, the size of these offerings will be smaller than most issuances in 2008 and significantly smaller than the record-size offerings by DP World, Air Arabia and Deyaar in 2007. “We also believe debt issuance, post the resolving of Dubai World’s debt issues, will continue to play a key role and their presence will be noticeable.”


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