UAE consumer spending slows down in 2009

Private and public consumption in the UAE still the second largest in the Arab World, says AMF

Consumer spending in the UAE sharply slowed down in 2009 because of the global fiscal distress and tight bank lending but it remained the second largest in the Arab World, official data showed on Wednesday.

Private consumption, which comprises spending by local families on goods and services, edged up by only around 1.8 per cent last year after leaping by nearly 21.8 per cent in 2008 when oil prices hit an all time high, showed the figures by the National Bureau of Statistics of the Ministry of Economy.

From about $115.8 billion (Dh425.3bn) in 2008, private consumption in the UAE rose to around $118.1bn, its highest ever level.

But the increase last year was one of the slowest growth rates over the past decade and was a result of waning consumer confidence due to the global crisis and tight credit by local banks hit by regional debt default problems.

According to the Abu Dhabi-based Arab Monetary Fund (AMF), a key Arab League establishment, private and public consumption in the UAE is still the second largest in the Arab World after Saudi Arabia.

It gave no figures for 2009 but in 2008, final consumption in the UAE, covering government and private purchases, totalled about $131bn, while it stood at nearly $22bn in Saudi Arabia.

The two Gulf countries accounted for more than 33 per cent of the total Arab consumption of $1,063bn.

The Ministry of Economy’s figures showed growth in private investment in the UAE also slackened in 2009 although it reached a record high of around $66.8bn.

It grew by around 5.5 per cent last year compared with nearly 21 per cent in 2008, when it stood at about $63.3bn.

Private investment stood at $52.2bn in 2007 and around $19.9bn in 2006, according to the report.

In a recent study, a key Saudi bank said private consumption in the UAE has been stifled by high debt in previous years and a sharp downturn in the real estate sector following the global credit squeeze.

“Consumers in the UAE appear most constrained as they confront the aftermath of an excessive build up in credit and sharp real estate correction. Past evidence from around the world suggests that countries experiencing the largest increase in household leverage before a housing crisis tend to experience more severe and long lasting downturns,” Saudi American Bank Group (Samba) said.

“Certainly efforts by UAE households to reduce their elevated debt levels via higher savings are expected to result in a sluggish recovery in consumer spending, which is likely to be accentuated by continued corporate restructuring and deleveraging in Dubai. However, there are grounds for optimism that UAE consumers will pull through more quickly than past trends would suggest.”

The report noted that non-hydrocarbon sectors in the UAE, mainly trade, tourism, and services are picking up in line with a revival on global activity.

“As a result, the UAE economy as a whole is expected to start growing again this year, accelerating to around three per cent real GDP growth in 2011,” it said.

“Not all UAE households will be highly leveraged, and real disposable incomes throughout the emirates will benefit from the sharp drop in inflation, especially rental costs. Further progress with restructuring of Dubai’s debt and greater transparency over Dubai corporate finances will also go some way to helping restore confidence. However, as in the rest of the GCC, until a durable global recovery is seen to be underway, fear of a double dip global recession will continue to dampen sentiment andstunt consumer spending.”

The Ministry’s report showed the UAE’s economy was also the second largest in the Arab world after Saudi Arabia despite a contraction in its nominal GDP. It put the GDP at Dh814.3bn in current prices, down by around 2.1 per cent from the 2008 nominal GDP of Dh934.3bn.