Real GDP growth to slow down in five years

The UAE’s real gross domestic product (GDP) growth rate is expected to slow down over the next five years, according to predictions by the International Monetary Fund (IMF).

The growth rate has been forecast to drop to an average 7 per cent between 2008 and 2012 from its current high level, the Dubai Chamber of Commerce and Industry (DCCI) said in a report released yesterday.

Similar projection was made by investment banking firm EFG-Hermes last week when its 2008 outlook report said real GDP growth will slow to 8.6 per cent as oil output declines in response to Opec production cuts. However, the report said the economy is expected to maintain strong growth of 9 per cent real GDP in 2008 and to continue to follow a high growth trajectory till 2010.

“The year ahead will be a stronger one for the UAE stock market, supported by a backdrop of robust earnings growth, principally in non-financials, high oil prices, abundant liquidity, and a steady real estate market,” the report said. The country’s diversifying economy means growth will increasingly depend on non-oil activities.

The Emirates’ non-oil GDP has been growing at an average of more than 10 per cent over the last five years.

According to the report, inflation is expected to gradually fall during the 2008-2012 period and will average about five per cent, thanks to easing of housing shortages and government fiscal expenditure restraint.

The government overall budget balance is expected to remain in surplus, indicating likely controls on government spending aimed to reduce inflationary pressures in the economy.

The IMF estimated that inflation in the UAE exceeded nine per cent in 2006.

The overall budget balance is expected to be around 24 per cent of the GDP and likely to fall over the next five years.

However, government debt – mainly commercial banks’ claims on government – is expected to rise gradually, averaging 12 per cent of the GDP, the report stated. Investment in the UAE is also set to increase over the next five years. The private sector accounts for the majority of investment in the economy.

The UAE’s national saving rate at 42 per cent exceeds the national investment rate, 24 per cent, indicating that the country is a net lender to the outside world.