UAE could lag GCC economic recovery - NBK

The UAE may lag its GCC neighbours in an economic recovery due to weak bank lending and an oversupply of real estate, NBK has said.

The Kuwaiti bank said that while the UAE economy is currently benefitting from various emergency policy measures, economic growth is likely to be hampered for at least another year by high debt levels, weak bank lending and oversupplied property markets.

“After contracting by 1 percent this year, we expect real non-oil GDP to grow by a modest 2.5 percent in 2010, possibly leaving it as one of the region’s slower growing economies next year,” the bank said in a research note.

Real GDP including oil would grow by 3.6 percent next year.

A number of serious downside risks to the growth outlook remain, including a relapse in world economic growth, a fall in oil prices and possible debt defaults by large UAE-based groups, it said.

Although the impact of the downturn was limited in oil-rich Abu Dhabi, its small non-oil sector, which accounts for only a third of the UAE’s total non-oil economy, means the emirate’s ability to pull the UAE economy through the crisis is limited.

Time-consuming consolidation and restructuring deals will be major themes in the corporate sector next year, it said.

“The delay to the finalising of the merger between Emaar and certain subsidiaries of Dubai Holdings – partly due to difficulties in evaluating property assets – is one example of how slow things might be to reshape,” the bank said.

NBK said it remained “relatively positive” on the longer-term prospects for the country’s economy, noting that purging bad investments and lowering input costs may help create more balanced and sustainable growth in the long term.

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