UAE's economic growth projected to reach 3.3%

Economic growth in the UAE is expected to reach 3.3 per cent this year as falling oil prices hit revenues in the world's fifth-largest oil exporter, the IMF said.

The IMF projection comes weeks after the UAE's central bank governor said the economy – estimated to have grown 7.4 per cent in 2008 – could contract in 2009 due to the global financial crisis that has dragged major economies into recession.

"The outlook for 2009 and beyond has become more clouded, as the UAE has been adversely affected by the turmoil in global financial markets," the IMF said in the report based on Article IV consultations completed in January.

"The global weakening will reduce demand for tourism, trade and financial services, while lower oil prices may affect public spending," it said.

Like fellow Gulf states, the UAE relies heavily on oil revenues, which stood at 39.5 per cent of gross domestic product in 2008. Soaring oil prices had helped fuel a six-year boom in the seven-member UAE, the Arab World's second-largest economy and home to the Gulf Arab trade and tourism hub of Dubai.

But with oil now trading at around a third of last July's peak near $150 a barrel, credit markets tight and demand flat, Gulf oil exporters that have spent billions shoring up their economies are projecting deficits for 2009.

The UAE central bank and finance ministry have together launched Dh120 billion worth of funding facilities for banks since September.

The central bank has also bought $10bn (Dh36.7bn) in Dubai Government bonds to enable it to help state-linked firms meet obligations.

But oil and gas exports are expected to decline to $80.8bn in 2009 from $109.2bn last year, contributing to a projected decline in the current account surplus to 8.7 per cent of GDP this year from 17.2 per cent in 2008, the IMF said.

Inflation is set to ease to 6.7 per cent this year from 12.7 per cent in 2008. The UAE and other Opec members have been cutting oil output since late last year in an effort to shore up oil prices. The IMF said credit to the private sector was expected to slow to 23.9 per cent in 2009 from 39.2 per cent in 2008, while the economy would continue to face risks in the short- to medium-term if the slowdown continues.

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