UAE economic recovery seen in 2010 - analyst

The UAE economy may have reached the “bottom of this downturn” and should see a “mild recovery” in 2010, Morgan Stanley said on Monday.

The recent improvement in global economic momentum, the rise in oil prices, and the stabilisation in domestic markets are helping the country’s economy to recover from a slump led by the collapse in real-estate and energy prices, Morgan Stanley’s Dubai-based analyst Mohamed Jaber wrote in a note.

“The strength of the recovery will depend on the momentum for global growth and the timely resolution of imbalances in its domestic real-estate and credit markets,” Jaber said in comments published by newswire Bloomberg.

Real-estate prices in Dubai tumbled about 50 percent from their peak and may drop another 20 percent this year, Deutsche Bank AG said earlier this month.

Banks in the UAE faced a shortage of funds as the financial crisis blocked their access to foreign borrowings and local liquidity dried up as investors speculating on a currency revaluation withdrew money.

The UAE economy will likely contract two percent this year as oil production declines and the real-estate industry faces “continued” difficulties amid the restricted availability of credit, Jaber said. The economy grew 7.4 percent last year.

The UAE plans to guarantee bank bond sales, intensifying efforts to shore up the financial system after pledging 120 billion dirhams ($33 billion) to boost liquidity, Central Bank Governor Sultan Bin Nasser al-Suwaidi said on Sunday.

Total bank lending grew by 1.5 percent in the first five months of this year, compared with an increase of about 20 percent a year earlier, according to Morgan Stanley.

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