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UAE 2010 inflation at 0.9 pct, lowest since 1990

Communication and housing costs fall.

January 19, 2011 10:35 by

United Arab Emirates inflation eased to 0.9 percent last year, its lowest annual level since the Gulf war started in 1990 as Dubai debt woes slowed recovery of the world’s third largest oil exporter.

Consumer price growth in the OPEC member economy hovered close to 1 percent for most of 2010 as the debt troubles of Dubai state-owned companies dented banks’ lending appetite and a once-booming property sector remained weak.

The official figure is slightly below a 1.2 percent forecast by a Reuters poll of analysts  and down from 1.6 percent in 2009 when the financial crisis was still ripping through the world’s top oil exporting region.

“Growth is weak, credit growth is slow, rents have fallen sharply – no one should be surprised that inflation is so low,” said Simon Williams, chief economist at HSBC Bank in Dubai.

Stable prices should help keep more money in the pockets of the country’s expatriate work force, who haven’t seen their wages rise since the heady days of the expansion boom. Expatriates make up more than three-quarters of the population and are a key part of the economy.

Figures for December itself showed UAE consumer prices rose 1.7 percent on an annual basis and fell by 0.3 percent from the previous month as food costs plunged, data from the National Bureau of Statistics showed.

A separate release showed inflation in Dubai, one of UAE’s seven members and the region’s trade and business hub, decelerated to 0.6 percent last year. Pressures are higher in neighbouring Abu Dhabi, which controls most of the UAE’s oil wealth, with inflation running at 3.1 percent last year. With banks heavily exposed to Dubai’s indebted state conglomerates, corporate lending is yet to pick up. As a result, the UAE’s economy has been lagging its Gulf peers with growth forecast at 2.3 percent in 2010.

That is expected to improve this year to growth of 3.6 percent after state conglomerate Dubai World sealed a $25 billion debt restructuring deal, though a heavy debt repayment schedule clouds the picture.

Further cuts to fuel subsidies and rising food costs, which pushed inflation up across the Gulf last year, are expected to be the key factors fuelling UAE inflation this year, but the weak property sector is seen slowing momentum.

“Our expectation is that in 2011, the driver of inflation will be food prices that are on an uptrend globally and energy prices,” said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi.

Analysts polled by Reuters in December expected inflation to accelerate to 2.8 percent this year, while the statistics office had predicted price growth to stay in a range of 2.0-2.5 percent.

(Editing by Alex Richardson and Patrick Graham)

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