Low inflation to spur Dubai growth - Emirates24|7

Low inflation to spur Dubai growth

Receding inflation and lower property prices in Dubai are expected to spur economic growth in the medium term as the region’s business hub becomes more cost-competitive, a key Kuwait bank has said.

National Bank of Kuwait (NBK) also estimated that the UAE real GDP swelled by around 4.6 per cent in 2011 but projected growth at 2.4 per cent in 2012.

It said growth in the non-oil sector grew by an estimated 3.5 per cent last year and is expected to record similar growth in 2012.

In a study on the Gulf economies, NBK said the relatively lower non-oil growth was a result of spending restraints, mainly in Dubai, adding that growth in 2012 would be among the lowest in the region.

“This will be amongst the weakest performances in the region. But there are some silver linings. High oil prices will sustain confidence while the consolidation phase runs its course; strong regional growth will support internationally-exposed sectors (such as trade, tourism and finance) if activity elsewhere in the world weakens,” the study said.

“And another year of low inflation and soft real estate prices will boost Dubai’s cost competitiveness versus the rest of the Gulf Cooperation Council (GCC), helping to support the medium-term outlook.”

Four-year low

Inflation in Dubai shrank to a four-year low of 0.52 per cent in 2011 as a result of a sharp drop in rents and housing prices, according to official data.

Housing, water, electricity, gas and other fuels dipped by around 3.3 per cent in 2011 compared with a1.25 per cent fall in 2010 after a 2.4 per cent rise in 2009 and much higher increases in the previous year.

The decline was the main factor for the lower inflation rate given the high share of that sector in the CPI, accounting for 43.7 pert cent, according to a new report by the Dubai Statistics Centre (DSC).

Last year’s inflation rate was the lowest in four years as it stood at 0.55 per cent in 2010 and 4.03 per cent in 2010. In 2008 it hit an all time high of more than 12 per cent due to a surge in rents and food prices.

A separate report by a London-based business group said 2011 was a year of consolidation for Dubai, with solid growth for many key economic sectors, the debt load of some of the emirate’s leading corporations sharply reduced and confidence growing apace.
 

4% growth

Oxford Business Group (OBG) said that although year-end figures have yet to be released, Dubai’s economy is expected to have posted growth of 4 per cent or more for 2011 mainly on the back of a strong performances by the trade and services sectors.

“Indeed, despite the concerns over the global economy, Dubai appears to be looking at the New Year with confidence, with the government set to step up investments aimed at bolstering growth,” OBG said.

It said the budget also foresees a sharp reduction in the deficit for 2012, with the revenue shortfall projected at just under $500million, more than 50 per cent less than in the past year.

Total expenditures for 2012 have been set at $8.79 billion, while income is expected to come in at $8.29 billion.

Better investor sentiment

“This strong turn around from the higher deficits of the past few years since the 2008 global economic crisis should further restore investor sentiment and encourage growth,” the report said.

“The cause of the emirate’s recovery will be aided by the low inflation levels going into 2012.…. with the costs of food, fuel and property all expected to remain flat during 2012, there is little to suggest Dubai’s inflation rates will markedly increase in the New Year.”

UAE growth

NBK estimated growth in the UAE oil sector at around seven per cent in 2011 because of higher crude prices and an increase in the country’s oil output by around 226,000 barrels per day to 2.56 million bpd.

Turning to finance, it cited IMF data as showing the UAE suffered from a consolidated account deficit of around Dh153 billion during 2009-2010.

But the report expected the budget to have returned to what it described as comfortable surplus in 2011 and 2012, in the range of five per cent of GDP if profits from state oil company ADNOC are included.

“This is based on very modest spending growth and oil prices of around $110 in both 2011 and 2012, which generates a surge in hydrocarbon revenues in 2011. The current account should see even larger surpluses.”

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