UAE to grow at about 3.5% this year despite crisis

The UAE will grow at about 3.5 per cent in 2009 even as the world's growth gets impeded to 0.6 per cent, data by an investment advisory firm showed here yesterday.

Merrill Lynch's Chief Investment Officer Gary Dugan said the UAE Government needs to understand the magnitude of the impact that the crisis can have and take stringent measures to contain it. "It's going to be a decisive year for the world economy," said Dugan.

"Government intervention will play a critical role in determining whether we experience a relatively short and sharp downturn – which could draw to a close within the next 12 months – or a long and lingering recession such as that experienced in Japan in the 1990s," Dugan said, adding that the slowdown could continue for more than a year.

Dugan said the steps taken so far notwithstanding, governments [across the world] are to play a pivotal role in tackling the economic crisis, using tax cuts and public spending to spur growth.

"Governments will have to strike a delicate balance between promoting growth through public spending and resorting to excessive borrowing." Governments may have to consider significant fiscal packages worth between two per cent and five per cent of gross domestic product (GDP) to help kick-start their economies and boost flagging consumer and business confidence, Dugan said. "Policymakers will have to offer effective fiscal packages to stimulate their economies. The seeds of recovery could be sown in 2009 but if they fail to germinate we could face a multi-year recession."

Dugan said new research could bring down expected growth in the UAE to below three per cent in 2009. And, therefore, the GCC sovereign wealth funds (SWFs), including Abu Dhabi Investment Authority, is expected to focus more on spending within the UAE in 2009 than outside, he added.

Dugan said it is consumers in Asia who still have savings to spend that can drive global demand. "Consumers in the US do not have a potential to spend. It's consumers in China, India and rest of Asia who need to spur demand."

He said oil prices will have a strong say in determining the economies of GCC countries in 2009, pointing out that this is the primary aspect that exposes the region to global economic slowdown. "The oil prices will depend on the demand that builds up in the US or the UK. So the UAE and Dubai's performance will depend on how the global economy fares," Dugan said.

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