Retailers, banks under fire over consumer spending

UNDER FIRE: The DPE has said banks and retail outlets are partly responsible for soaring consumer spending in the UAE. Picture for illustrative purposes only. (Getty Images)

Abu Dhabi's government has hit out at irresponsible retail outlets and banks for fuelling runaway consumer spending that is hurting the UAE economy.

In its weekly report, the Department of Planning and Economy (DPE) warned that this culture of consumerism could seriously dent the country's future economic growth if the current trend continued.

"The combination of easy loans in addition to advertising and media propaganda have all combined to plunge consumers into a quagmire of spending spree," the report said.

The DPE said consumer spending had surged 122 percent during the last five years, jumping 17.7 percent to 320 billion dirhams ($87.1 billion) last year - almost half the UAE's gross domestic product (GDP).

The department said daily per capita consumer spending in the UAE stood at $27, more than seven times higher than the average daily spending in the rest of the Arab world.

It said massive consumer spending was seeing a large amount of liquidity diverted away from production and investment.

It said this was particularly concerning as 85 percent of consumer goods were imported from abroad.

"This alarming consumption rate could, in the future, constitute a big hurdle in the face of any plans to transform the country from a consuming to producing nation," the report said.

The DPE called for "stringent measures" to be introduced limiting how much money banks could lend and for the media to play a "more positive role in changing the culture of spending".

Loans to individuals surged almost 40 percent in 2007 and rose a further 11.4 percent during the first quarter of this year to touch 48.41 billion dirhams, according to the central bank.

Consumer loans have almost doubled over the last four years on the back of soaring economic growth spurred by revenues from record oil prices, which have jumped seven-fold since 2002.

Growth in consumer spending has also been blamed for fuelling inflation in the UAE, which jumped to a 20-year high of 11.1 percent in 2007.

IN PICS: The UAE's shopping obsession
As the gov't warns consumer spending is harming the economy, Arabian Business examines the national pastime.

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