The UAE is an attractive “defensive play” against a slowing global economy and rising oil prices, according to investment bank UBS.
In its latest research on the UAE economy, the Swiss bank said: “The growth outlook for 2008-2009 remains strong, thanks to high energy prices and the ongoing boom in construction and real estate; we expect real GDP to slow only moderately from 7.6 per cent in 2007 to seven per cent in 2008 and 6.6 per cent in 2009.”
However, in the long-term UBS believes that a downturn in the real estate sector will hurt growth in the Emirates but that it is not likely to occur before 2010.
“We firmly believe the resilience of the UAE economy will be [stress] tested sooner or later, particularly when the real estate market suffers a correction or oil prices come down, but we do not really expect this to happen over the next two years,” it said.
And UBS warned that “not everything is bright” for the local economy. “Amid widespread signs of overheating, inflation has risen to 11 per cent. The dirham’s fixed exchange rate against the dollar is forcing the UAE Central Bank to follow the Fed’s rate cuts at a time when tighter, not looser, monetary policy is needed,” UBS said.
“Real interest rates are negative, increasing concerns about future asset price bubbles. Foreign debt in the corporate sector is rising. When seen in this light, fiscal policy appears lax: all of which is fuelling a debate about whether the UAE should revalue the dirham or peg it to a currency basket.”