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29 March 2024

Dubai recovery boosts UAE growth

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By Staff

Returning confidence to Dubai’s economy will ally with strong oil prices and other factors to boost the UAE’s real GDP by around five per cent in 2011 and growth is projected to remain strong in 2012, a key Kuwaiti bank has said.

National Bank of Kuwait (NBK) said it had revised its forecast for the UAE’s non-oil GDP growth from 3 to 4 per cent “close to the long-run trend” in the country’s economy, the second largest in the Arab World after Saudi Arabia.

It projected overall GDP growth at 5 per cent this year and slightly lower at around 4.7 per cent in 2012. NBK forecast growth in the non-oil sector at about 4 per cent in 2011 and 5 per cent in 2012.

“The improvement comes from a combination of higher than expected oil prices, a strong performance from the trade sector, and expectations that faster regional growth will benefit Dubai,” the bank said in a study.

“In addition, lower than expected inflation will boost the country’s international competitiveness and support real incomes, benefiting consumer-facing sectors.

These factors are set against the continued drag on activity from the debt overhang, corporate restructuring, weakness in the construction and property sectors and sluggish bank lending.”

The study said that as the fallout from the 2008 global fiscal turmoil and real estate downturn begins to ease and confidence in the economy starts to return, conditions in the financial sector have shown some signs of improvement.

“Movement on debt restructuring deals worth $25b involving state-backed corporates Dubai World and Nakheel has been a key part of this, providing clarity for banks and renewed cash flows for other creditors,” it said.

NBK said the recent massive upward revisions to the UAE’s population figures – to 8.2m in 2009 from 5.1m before – have somewhat strengthened confidence in the domestic economy’s resilience, as well as the UAE’s importance for the Gulf region as a whole.

“Moreover, the surge in the number of expatriates – whose population share rose from 80 per cent in 2005 to 89 per cent in 2009 – has made the economy less vulnerable to regionally-inspired socio-political unrest…..at such low levels, the indigenous labor force can be easily absorbed.”

NBK said it had also revised up its growth forecasts for the UAE’s oil sector from 5 to 7 per cent due to an increase in the country’s crude production.

Citing independent estimates, it said the UAE’s oil output increased by more than 150,000 barrels per day, or 7 per cent, between November and March, as OPEC responded to higher oil prices and some member countries boosted production to compensate for lost Libyan output.

“So long as oil prices remain high, further – albeit more modest – increases in oil output are seen in 2012. As a result of these changes, overall GDP growth is seen at close to five per cent this year and next.”

Turning to inflation, the report said the rate dropped from a recent peak of 1.8 per cent in October to 1.2 per cent in March, adding that the decline was driven by lower than expected food price inflation of about five per cent in March.

Housing rents are also falling again, perhaps reflecting the addition of new apartment supply to the market, according to the report.

“So long as food price inflation continues to decelerate, inflation is likely to remain very low this year, averaging around two per cent,” it said.

“Higher economic growth rates and the effect of the weak US dollar on import prices could see inflation accelerate next year. But at three per cent, it will remain amongst the lowest in the GCC.”