Recession in UAE cannot be ruled out - analysts

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GLOOMY OUTLOOK: The UAE economy could fall into recession in 2009, according to latest predictions from analysts. (Getty Images)

Analysts at two leading banks in the Middle East predicted on Wednesday there could be a recession in the UAE this year, on fears the global slowdown and weak oil prices could hit domestic GDP growth.

Falling oil prices, cooling real estate and construction markets, together with a slowdown in the tourism sector, especially in Dubai, means the UAE is expected to post low, or possibly negative GDP growth in 2009, according to analysts.

A recession is defined as two consecutive quarters of negative economic growth.

Marios Maratheftis, head of research at Standard Chartered bank in Dubai told Arabian Business: “There is a possibility. In a environment when you have the US economy in a recession, the Eurozone in a recession, the UK and Japan in a recession, you cannot say there is no chance or risk of seeing a recession here.

"Especially when there are job losses in different sectors of the economy, when we see that real estate and construction are suffering, when we see that tourism has been hit because of international factors. You cannot dismiss the risk.”

His comments come just days after the UAE''s Federal National Council (FNC) gave its approval for the draft 2009 federal budget, the biggest in the country's history.

The 42.2 billion dirham ($11.5 billion) no-surplus and zero deficit budget covers all ministries and affiliated federal institutions.

Maratheftis expects the UAE economy to grow by 2.7 percent next year, down from 4.8 percent in 2008.

He added: “Our main case scenario is that that we will just about avoid it [a recession]," although he stressed the forecast was more likely to "under-perform rather than over-perform".

“The risks are skewed to the downside,” he said.

“It [a recession] is a possibility with the large OPEC-led production cuts and the slowdown in GDP,” added Monica Malik, senior economist at Egyptian investment bank EFG-Hermes.

Ripples from a global credit crunch which has gathered momentum over the last few months are now being felt in the oil rich Gulf.

Oil prices have fallen nearly $100 a barrel since their peak at $147 last summer due to weaker demand and global recession fears.

Last month the Organisation of the Petroleum Exporting Countries (OPEC) agreed to its biggest output cut ever, cutting 2.2 million barrels per day (bpd) on top of the existing two million bpd agreed since September, in a bid to halt the tumbling price of the commodity.

Oil and gas account for about a third of the UAE’s annual GDP. According to the IMF the UAE’s total GDP for 2008 was $240 billion.

The lowest year for GDP growth in the UAE recently was in 2001, where the economy grew by around 1.6 percent, according to Maratheftis.

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READERS' COMMENTS

Recession go haywire
Posted by Thayyib Ahmed, Dubai, U.A.E. on Thursday 8 January 2009 at 13:01 UAE time

The so called "progress" done by the entire world for the last 5 years, now unwinding itself due to economic downturn.

We are all paying the price for the few greedy and stingy CEOs of the corporate world, who are doing their unfair practices for all these years to grab whatever they could from the downtrodden poor masses of the world.

One way it is a triumph for the poor, who can at least expect some major changes in the near future to survive with less hardship, if these things continues for the better.

Economy & Recession
Posted by Maqsood Siddiqui, Muscat, Oman on Thursday 8 January 2009 at 12:31 UAE time

The economy is one of our greatest excuses and crutches. It is really easy to blame the economy when our business is down. We often hear business owners say, "I am really having a bad year because of the economy." I am willing to bet that you have seldom heard a business person say, "I am having a great year and it is all due to the economy. It has nothing to do with me."

Anyone who is in business should study economic cycles. They should know that the economy always has a recession after a boom period. Yes, I know that the current recession is worse than usual. However, as a business person you should have been prepared. No, I didn't know when it would start or how bad it would be and I don't expect you to know either. But being prepared is an important part of running a business. I have an umbrella in my car 365 days per year. I don't know when it is going to rain. However, when it does, I have my umbrella with me. As a business owner, you can't just plan based on the current economic cycle. That is like the defense of a football team planning for every play to be a run just because the first play of the game was a running play.

Don't sit and complain. No matter what industry you are in there will be opportunities in 2009. If you haven't adjusted your business plan because of the recession, DO IT NOW! If you don't know what the opportunities are, get help. Have a special meeting with your board or advisory committee. Have a brainstorming session with your employees, friends, family and any one else who will help you. Meet with other business owners and exchange ideas. Hire a marketing consultant. TAKE CONTROL!!
I have taken numerous steps to adjust my business for 2009. I expect 2009 to be a better year for me than 2008. How about you? Will your business be better or worse? It is under your control.

Recession in the UAE
Posted by paul, dubai, UAE on Thursday 8 January 2009 at 11:32 UAE time

I would disagree with the premise that the recession in the gulf will be less severe than that in the US, UK or Europe. I think it will be several times worse.

The problem is that the booms in all these countries over the last few years have been driven by credit and speculation on real estate. In the US, UK and Europe, this proportion of the economy is relatively small.

In the UAE, construction and real estate *is* the economy. It has created most of the growth, especially in terms of population, over the past few years. Now unlike the UK, US and Europe, the credit tap has not just been turned down, it has been completely and utterly turned off.

To expect some residual growth from the recent boom to cushion a total collapse in real estate, construction and tourism is really wishful thinking.

Remember that just a few months ago we were being told that the UAE is immune to the global crunch. Then we were told that real estate falls would not affect the wider economy and recession was not possible. Fast forward 3 months and you can see where this is heading.

I have noticed that TV recently has been airing some rather upbeat propaganda films showing all the impressive things in Dubai. This is a very worrying sign of how bad things must be.

Take out recession from your mind
Posted by Pradeep Naik, Dubai, UAE on Thursday 8 January 2009 at 09:22 UAE time

Everyone need to focus on their goals & aims in life. War,economy,going bust in business, are all created by a few people & some media to sell their products.
FEAR creators are scared themselves.
Just do your work, have faith in whatever your religion you are, hold on to your available resources, be more honest to yourself. You will handle a so called recession very easily.

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