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GCC Economy Expected to Remain Stable After Record High Trade Surplus in UAE Last Year With Dubai Driving Growth Through 2012

Middle East : 01 April 2012

2011 Trade Surplus in the UAE Hits Record High

According to Qatar National Bank (or QNB), the trade surplus in the UAE hit $94 billion last year, a new record high due to strong oil prices and greater output.

This commercial balance puts the UAE in second place in the GCC, behind Saudi Arabia’s $254 billion surplus. These two member states make up almost half of the GCC’s combined surplus, which is estimated at about $520 billion last year.

Based on figures from the IMF, the UAE reported a trade surplus of $55 billion for 2010.

This all time high surplus resulted from surging crude prices that averaged $105 per barrel and rising oil supplies that surpassed 2.5 million bpd.

Analysts noted that the increased imports in the UAE were offset by surging oil exports. Although the UAE is second to Saudi Arabia in economic terms, the Emirates have become the leading market for imports over the last two years.

Massive trade surplus and current account balances are the result of rising crude production, which also boosted the UAE’s financial foreign assets.

Japan remains the leading trade partner for the region, buying almost 16 percent of the GCC exports and providing about six percent of the imports back in 2010. South Korea is another major trade partner for the region.

Trading between the GCC and other Asian nations has vastly increased in the last few years. Back in 2001 India was only responsible for two percent of GCC trade, whereas in 2010 that figure had increased to 11 percent.

Trade with China rose over the same time period, up from four percent in 2001 to ten percent in 2010. As demand for hydrocarbons increases in China and India, they will continue to rely on the GCC. Also, these nations have put growth strategies in place to specifically target exports.

Western partners also remain important to the GCC, with Europe and the US handling around 20 percent of the GCC trade back in 2010.

GCC Economy Sees Growth Return to Normal Rates This Year

Growth rates in the GCC are expected to return to normal levels, with about four percent growth expected in 2012, according to the National Commercial Bank (or NCB) in Saudi Arabia. Increased public spending by many GCC member states, as well as lending by banks and robust oil prices, will drive growth over the coming year.

NCB released a study on the GCC economy, noting that 2011 data is expected to report healthy growth after oil prices and production rose to support increased government spending. GCC-memberĀ  governments moved to strengthen employment creation, social benefits and local housing, with spending well above original budgeted amounts.

Growth in the region hit 7.2 percent overall, with Qatar reporting 18.7 percent growth, Oman stating a seven percent growth rate and Saudi Arabia reporting 6.8 percent. The UAE also experienced a year of moving forward with higher activity in the private sector, increased confidence and progress in real estate and other areas.

The NCB study noted that 2012 forecasts indicate lower levels of growth, although budgetary figures released by the governments include healthy public spending and oil production and price levels are expected to remain stable.

The private sector is expected to progress, although with a gradual pace, resulting in recovered bank lending and momentum in capital markets. Considering only the base effect, NCB expects headline growth rates to drop down to about four percent.

The report also outlined potential economic dangers, including the Euro-zone situation, political posturing around Iran and other external conditions. Structural weaknesses in the economy include low real estate markets in the UAE and Bahrain, as well as high leverage of organisations in the UAE.

The report noted that the GCC enjoys significant financial cushion, due to low government debt and rich hydrocarbon resources.

Dubai To Drive Growth in the UAE for 2012

The effects of global slowdowns will be offset by higher levels of spending in Abu Dhabi, according to a recent report by the Saudi American Bank Group (or SAMBA). Growth in the UAE will be driven by non-oil economic sectors in Dubai and rising public spending in Abu Dhabi.

Growth in the UAE will be boosted by larger development projects in Abu Dhabi, as well as robust non-hydrocarbon sectors in Dubai. These conditions should offset the impact of global economic slowdowns and Iranian trade restrictions.

SAMBA’s report noted that the UAE will enjoy healthy fiscal conditions due to rising oil outputs and high crude prices. Inflation is expected to remain near 1.5 percent, one of the lowest levels in the GCC.

The report also stated that budget surplus totals in the UAE will reach about seven percent of the GDP, with a current account balance of almost 13.8 percent.

SAMBA stated that several key developments have impacted the GCC’s economic outlook since the report issued in late 2011. Despite positive and negative news, and although risks remain, the report forecasted improved growth prospects for the GCC and expectations for 2012 were revised in light of that information.

Due to perceived shortfalls in oil as a result of Iranian sanctions, oil producers in the GCC have maintained high levels of output, affecting the growth rate for the coming year. Surging revenues are expected to support higher public spending and increase confidence.

Confidence levels have already increased after fears over the Euro-zone crisis have abated, with greater levels of liquidity flowing into emerging markets such as the GCC.

SAMBA expects growth in the region to hit 4.2 percent for 2012, after seven percent growth in 2011. Qatar is expected to experience 5.7 percent growth and Saudi Arabia should see 4.4 percent growth, according to SAMBA.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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