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Economic Recovery in the UAE For the Non-Oil Industries is Predicted for 2011-2012

Middle East : 20 July 2010

Future projections for the UAE’s non-oil based economy are positive as a Saudi investment firm predicts a slight increase in 2010 followed by 24 months of sharp recovery.  These predictions are based on increased oil production and high oil prices.

The non-oil GDP of UAE recorded peak growth ratings from 2007 to 2009 before hitting a sharp down turn in 2009 with growth of only one per cent.  NCB Capital expects that rate to drop even more this year.  The affiliate of Saudi National Commercial Bank is looking for only 0.1 per cent growth this year.

An NCBC study predicts that news will change in 2011, with that specific sector recovering by almost 3.7 per cent in that year and 4.1 per cent in the next.

Rising oil prices and increased oil production in the UAE would come along with that growth, according to the study.  NCBC predicts that the oil sector itself will enjoy a 2.1 per cent recovery this year and a 2.2 per cent boost in 2011 followed by approximately 4.2 per cent by 2012.  All of this is positive after an economic contraction of 6.3 per cent last year.

The growth is these two sectors is expected to result in a real GDP rise from the anticipated 0.9 per cent increase of 2010 to a 3.1 per cent and 4.1 per cent boost in 2011 and 2012 respectively.

A decrease of 200,000 barrels each day in the UAE’s oil production (as per the quota set by an OPEC agreement) and a decline in the financial and real estate sectors have kept the nation’s GDP down this year.  The UAE is a major player in the Arab world, with a GDP second only to Saudi Arabia.

These declines were felt strongly after the boosts of 2007, which saw a rise of 6.1 per cent and the 2008 increase of 7.4 per cent.

Experts say the economic troubles felt across the globe in 2008 were a factor in the GDP drop of the UAE.  It was countered by the stimulus packages introduced after the crisis which resulted in more consumer spending and a more supported banking sector.

With a decrease in oil prices over 2009 and a lower output, NCBC reported that the usual surplus of the UAE has become a deficit of approximately 2.7 per cent of their GDP this year.  After 2007’s record surplus of 26.7 per cent and an impressive 12.4 per cent surplus in 2008, the NCBC stated a drastic decrease to the 2009 surplus making it only 0.4 per cent.

The same report predicted that the surplus will rise again to approximately 5.9 per cent this year and increase further reaching 13.1 per cent for 2011.

By 2012 that surplus is expected to reach a high of 20.3 per cent.

Using today’s prices, the NCBC predicted the nominal GDP of the UAE will recover after a 2009 contraction of 11.9 per cent.  The recovery should be eight per cent over the year.

The report predicted that if crude oil prices increase as anticipated that GDP increase could be between 11 and 12 per cent for both 2011 and the year after.

Inflation was also covered in the report.  After 2008’s record setting inflation of 12.3 per cent, the 2010 rate is expected to stay around 1.6 per cent.  Inflation will increase in 2011 to 4.2 per cent and continue to rise through 2012, with an expected rate of 4.7 per cent.

The Ministry of the Economy for the UAE released a report that predicted only restrained growth.  Because the GDP is dependent on oil prices and other aspects, the estimates from this official source state a modest growth from 1.5 per cent up to 3.2 per cent over the course of 2010 and 2011.

The Ministry’s report stated that the weak global rebound from the recent economic crisis and the dampened real estate market are keeping the growth rate in the UAE restrained.  It also stated that the real estate sector has a long recovery time historically.

The report discussed the ongoing Dubai World debt restructuring and its role in the growth rate, acknowledging that banks and investors on foreign soil are hesitant to make investments due to uncertainty.  It also reiterated that the USE feds are open to supporting “individual emirates.”  The Ministry also stated that although that support is available, the nation’s government should not go the direction of “many governments in high-income countries” by getting overly involved in the daily “operations of a market type economy” and offering “exit strategies.”

In conclusion the report stated that the UAE’s GDP growth rate will likely surpass those of the higher income countries involved in the noted strategies but may still be slower over the short to medium term than those of Asia and other budding economies.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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