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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