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UAE Growth Hits 3 Percent According to Standard Charted Bank

United Arab Emirates : 14 September 2010

Figure is above the 2.5 per cent climb forecasted for this year by the Minister of Economy

Sultan Mansouri, the Minister of Economy for the UAE, recently forecasted a 2.5 per cent climb in the nation’s GDP for 2010.  Standard Charted Bank, one of the world’s leading banks, predicts that the country’s growth will actually hit closer to three per cent for 2010.  This higher figure is in spite of reservations and risky trends like weaker growth in credit.

The bank issued a recent Global Focus report for September that noted low inflation rates in the UAE are likely to remain that way.  Standard Charted Bank actually predicts that the government figures might have the pressures of inflation too high.

Standard Charted Bank’s figures put inflation in the UAE at 0.9 per cent annually and 0.3 per cent on a monthly basis in July.  High prices of fuel at the local pumps pushed the transportation portion of inflation (which is 9.9 per cent of the CPI basket) up by 3.5 per cent monthly.  On the other hand, the cost of housing fell, bringing the portion of inflation concerning housing and energy (39 per cent of the overall CPI) down 0.2 per cent monthly in July.

It has also been reported that the housing portion of the CPI may not be accurate.  Standard Charted Bank’s report notes that the housing portion has not been properly represented in the nation’s dynamics of housing market decline.  In 2009, for instance, the housing portion of inflation was reported to rise 0.42 per cent, pushing the overall number to a 1.56 per cent increase, in spite of the severe corrections seen in the property market over that time.  The bank believes this portion of inflation should be faced with more deflation, which will in turn keep the overall inflation numbers low in 2010.

There is growth in both major sectors of the nation’s economy, non-oil as well as oil, reports the bank.  The oil industry totals nearly 30 per cent of the country’s economy and rising oil prices and steady production will keep that sector’s contribution to growth a positive one for 2010.

The non-oil industries are also responsible for positive aspects in economic growth.  In Dubai, the trade and wholesale sector constitutes almost 40 per cent of the area’s GDP.

Official data puts the non-oil trade in Dubai up 18 per cent annually in the first half of 2010, when it reached $76 billion (Dh 279 billion).  The aviation industry in Dubai is also strong, as July saw 4.3 million passengers travel through the Dubai International Airport, a climb of 14.3 per cent over one year.

The bank’s one concern about the UAE was the absence of credit growth in the nation.

Credit growth in the UAE is exceptionally weak as the level of credit in private businesses dropped 3.2 per cent over a year and climbed only 0.6 per cent on a monthly basis in July.  This is mainly due to bank loans remaining above deposits.  In July that difference shrank to Dh 26.6 billion, down from Dh 40.2 billion, but that contraction was because monthly deposits rose; credit remained stable.

No growth in credit is tapping the liquidity out of the economy.  Standard Charted Bank also notes that lending rates between banks in the UAE are higher than US Libor, in spite of the reality that the UAE dirham is tied to the US dollar.  3M Eibor sits at 2.337 per cent currently.

That gap between loans and deposits might be allowing Eibor to maintain that height, but there are other reasons.  While this gap has gone down since this past April, the space between the 3M Eibor and the 3M Libor is wider.  This could be due to the UAE’s risk premiums, but it may also be due to an inefficient process of fixing the bank-to-bank rate in the nation.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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