UAE economy set to grow three per cent next year, says Samba
The Saudi-based bank said in a research note that the country’s economy is likely to contract one per cent this year, led by a decline in its oil sector as it implements Opec production cuts.
In February, Samba predicted economic growth in the UAE would slow to 0.5 per cent this year, from 6.8 per cent in 2008. Based on an average oil price of $57 per barrel in 2009, the UAE’s current account was to remain in surplus, although at 1.4 per cent of gross domestic product, compared with 22 per cent in 2008.
The UAE’s 15 per cent cut in oil production in line with Opec production targets “is expected to result in a sharp real decline in the hydrocarbons sector which is a major factor behind the projected overall contraction in real GDP this year”, it said.
“Despite the still difficult external financing environment, the UAE will not allow any defaults. Having saved a large proportion of the oil windfall of recent years, ample public funds are available to meet all debt obligations, and recovering oil revenues will swell resources further,” the note said.
The bank said deflation was a possibility at some point in 2009 as house prices remained under pressure, the bank said, although annual average prices were still expected to remain positive at around one per cent.
“A brief period of monthly negative inflation is possible later this year. However, this is likely to be short-lived,” the bank said, adding stronger oil prices, and government efforts should help bolster demand in the second half of the year.
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