Slowing down? UAE 2012 growth expected to drop to 3 percent
Real GDP grew 4.2 percent in 2011, most since 2006; Oil prices seen floating between $80-100/barrel – Economy Minister; Economy more resilient, bank lending sluggish
June 5, 2012 11:13 by Reuters
The United Arab Emirates’ economic growth is likely to ease markedly to around 3 percent this year, dented by global weakness but the OPEC member’s leveraged banking system seems to be more resilient to withstand any potential deterioration.
The UAE’s Minister of Economy Sultan bin Saeed al-Mansouri cut on Monday his forecast for the country’s gross domestic product growth this year following a sharp fall in global oil prices over the last several weeks.
Speaking at a news conference, where he revealed GDP data for 2011, Mansouri said he remained optimistic about growth this year: “The economy is in good shape, even excellent shape.”
“I am optimistic about 2012 with oil prices averaging about $112 (per barrel) in the first four months and that’s a positive indication,” he said, expecting oil prices to float between $80-100 per barrel this year.
But his forecast for 2012 was lower than his last prediction, made in March, of “almost 4 percent” growth. At that time, Brent crude oil was around $125 a barrel. Since then, signs of a global economic slowdown have dragged oil as low as $96 this week, the cheapest price since January 2011.
“Indications so far showed that the real non-oil sector still shows a strong performance. We believe that although growth is unlikely to be as strong as last year it should nevertheless remain solid in 2012,” saidMonica Malik, chief economist at EFG Hermes in Dubai.
The UAE, a federation of seven desert and coastal emirates, is the world’s No. 3 crude exporter, where oil accounts for 38 percent of its $339 billion economy.
The Gulf country’s GDP growth accelerated to 4.2 percent in inflation-adjusted terms last year, which was the fastest expansion since 2006, from a downwardly revised 1.3 percent growth in 2010, the National Bureau of Statistics’ data showed.
On Monday, Brent crude extended losses to hit a 16-month low as weak U.S. and Chinese economic data fanned renewed fears of a global economic slowdown, which would hit oil demand.
Slowdown in China and India, the UAE’s major trade partners, coupled with prolonged recession in Europe and weakness in the United States, would have adverse effects on the oil- and trade-reliant UAE economy.
Moreover, refinancing debts of its state-owned entities worth some $98 billion in 2012-2015 remains challenging, the International Monetary Fund has said.
“The channels through which these threats can impact the UAE is obviously the oil price as happened in 2008 and financial services sector,” said Fabio Scacciavillani, chief economist at Oman Investment Fund in Muscat.
“I would say that at present financial institutions in the GCC (Gulf Cooperation Council) and the UAE are in a better shape to withstand the shock, but we do not know the extent of the shock,” he said.
The global crisis in 2008 burst Dubai’s property bubble, triggering a $25 billion debt restructuring in its Dubai World conglomerate in 2009-2010, while other state firms were also hit. Bank lending has remained sluggish since then.
In 2009, the UAE economy, the second largest in the Arab world, shrank by 4.8 percent, according to the revised GDP data released on Monday. This was much worse than the 1.6 percent contraction previously estimated by the statistics office.
Mansouri also told the news conference that he expected inflation in the UAE of between 1 and 1.5 percent this year. A Reuters poll of analysts in March predicted economic growth of 3.1 percent and inflation of 2 percent in 2012.