UAE economy set for 2010 'pleasant shock'

The UAE economy may be in for a "pleasant shock" in 2010, but mortgage rates will remain high until banks close the gap between loans and deposits, one of the region's leading economists said on Monday.

Marios Maratheftis, regional head of research at Standard Chartered, told a conference at Dubai's Cityscape exhibition that mortgage and lending rates in the UAE were not "artificially high" but merely reflected the high cost of borrowing for the nation's banks.

"You can borrow as much as you like in the interbank market, that will not help you, because you cannot use those funds for loan growth," he said.

UAE banks were left with a AED120bn gap between outsanding loans and deposits after international investors, who were banking on the dirham depegging against the dollar, withdrew their funds in the first half of last year.

But Maratheftis, whose gloomy views on the economy once earned him the sobriquet "The Prince of Darkness", said any economic surprises in 2010 would be on the upside.

"To be honest I was much more nervous this time last year than I am now," he said.

"If people are shocked in 2010, I believe that they will be pleasantly shocked."

Although it was too early to gauge the total number of jobs lost in the UAE as a result of the economic downturn, the rate of decline has clearly begun to taper off, he added.

"We know that the labour market is a lagging indicator, so this is the last part of the market that will recover," he said.

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