EFG Hermes slashes 2009 growth rate for UAE

The UAE will post flat GDP growth this year, investment bank EFG-Hermes has said in a new report.

The regional bank slashed its real GDP estimate for 2009 to -0.04 percent from 3.1 percent, citing the country’s relatively large exposure to the non-oil sector and a correction in the real estate market.

A number of key economic drivers will be impacted by the global slowdown, including the tourism and financial sector, economist Monica Malik said.

Tourist arrivals are also a key driver of retail spending, she noted.

“This will be amplified by a series of job cuts linked to a property market correction, the cancellation of a number of property related projects and in the financial sector,” Malik said.

She added that the overall outlook of the UAE will be supported by government spending – estimated to increase by more than 20 percent – remaining strong and the continuation of investment programmes.

NBK said on Wednesday that real GDB in the UAE is likely to slow to 1 percent this year from 5 percent last year.

“The UAE economy could still outperform other nations in what promises to be a tough year for the global economy. However, set against the recent breakneck speed of expansion, this may feel like small consolation,” economist Daniel Kaye said.

“The ending of the recent multi-year boom in the UAE economy will be sharp and usher in a sustained period of much weaker growth.”

EFG-Hermes remains most positive on the economies of Qatar, Saudi Arabia and Abu Dhabi.

Qatar is forecast to post real GDP growth of 9 percent this year as a result of a substantial jump in gas production. Last year, the gas sector overtook oil as the largest contributor to Qatar's GDP growth.

“Although Saudi Arabia will see a sharp fall in oil revenue, it will continue to focus on investing in physical and capital projects. This is particularly important given the need to upgrade infrastructure and create employment opportunities,” Malik said.

The Saudi economy is forecast to contract by 0.9 percent this year on an average oil price of $50 per barrel, compared with an estimated budget break-even of $40 to $45 per barrel.

“After six years of fiscal surpluses we believe Saudi Arabia is in an extremely strong position to continue its expansionary stance, despite the substantially lower oil price, and can easily finance the deficit,” she said.

The Kuwaiti economy will shrink by 1.2 percent as the political environment continues to weigh on the country’s outlook.

Kuwait's oil sector, along with wider economic reform, is suffering due to political impasse between the government and parliament that has resulted in mega projects being stalled, EFG-Hermes said.

Oman and Bahrain are in a weaker position than other GCC countries to face the current global crisis, given the higher oil price required to balance their budgets.

Although both are likely to see real GDP growth this year, they will also realise the bloc’s largest fiscal and current account deficits, Malik said.

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