Source: Emirates 24|7
Country’s structural strength will allow it to withstand global crisis
Resurging sectoral performance in Dubai along with massive public spending and higher oil prices and production will trigger growth in the UAE this year and enable it to withstand the present global turmoil, a key Saudi bank says.
The Saudi American Bank Group (Samba) said it believes the UAE’s economy, the largest in the Arab World after Saudi Arabia, remains structurally strong despite a slowdown in non-oil economic activity in the second quarter as a result of debt problems in the United States and the European Union.
“The structural strength of the UAE economy as a whole should allow it to weather the storms currently buffeting global markets as well as continuing concerns over political unrest in the broader Middle East and North Africa,” SAMBA said in its latest monthly bulletin.
Citing recent PMI (purchasing manager index) data, it said non-oil economic activity slowed in the second quarter, consistent with trends in the US and EU. “However, given our assumption that the global economy will not slip back into recession, although growth will be weak, we still expect real GDP growth to come in at over four percent this year, bolstered by healthy public investment, rising hydrocarbons production and exports, and a positive contribution from Dubai’s traditional non-oil sectors of trade, logistics and tourism.”
Samba forecasts showed the UAE’s real GDP would swell by around 4.4 per cent, driven mainly by a 7.4 per cent rise in the hydrocarbon sector due to high prices and an increase in the UAE’s crude production. The report showed the country’s non-oil sector would grow by nearly three per cent in 2011.
In nominal terms, the UAE’s GDP is projected to surge by around 9.1 per cent to $330.8 billion in 2011 from $303.2bn in 2010, it showed.
Higher oil prices and output will also turn a 2010 budget deficit of 1.4 per cent of GDP to a surplus of 5.7 per cent in 2011 while the current account surplus will expand from 7.6 per cent to 10.7 per cent of GDP, the report said.
“More encouragingly, private businesses’ continued to increase employment, and job creation picked up to a three month high, with medium-sized firms the main employers. In the context of topical concerns over high unemployment rates in the broader Mena region, this development provides a timely reminder of the UAE’s continued ability to create private sector jobs (employment grew 56 per cent between 2002-2008),” Samba said.
Turning to banking, the study said that despite an improvement in liquidity, UAE banks face a number of headwinds which suggest that annual loan growth will remain muted. It said stricter regulatory measures on consumer lending will dampen prospects, as will still-rising NPLs and investor caution in the face of recent global uncertainties and falling stock markets.
“As a result, we now expect that loan growth will not strengthen much from current levels by year end….banks also still face problems with asset quality, much of it related to real estate and government-related entities which continue to seek debt restructurings. As a result banks’ provisions have continued to increase, topping $16.8 billion in June, and analysts believe that NPL ratios will continue to rise through 2012.”