UAE's 2010 growth seen flat - Merrill Lynch

There is unlikely to be any growth in GDP in the UAE next year and Dubai is likely to experience negative growth, Merrill Lynch said on Monday.

“There will be no growth in the UAE next year,” Bill O’Neill, portfolio strategist at Merrill Lynch Wealth Management EMEA said at a press conference in Dubai to announce his regional and global outlook for 2010.

O’Neill forecast that global GDP will grow by 4.3 percent next year and 4.5 percent in 2011, compared to a decline of 0.9 percent this year.

He said he expected the US and Eurozone to grow 3.1 percent and 2.2 percent respectively next year.

Prior to the announcement that Dubai World would be delaying its debt repayments, O’Neill said he believed that the UAE would grow by two percent in 2010 and by 4.5 percent in 2011.

However, he now believed that the impact of the recent Dubai debt crisis will see “close to zero” growth next year in the UAE and negative growth in Dubai’s economy.

He said the impact will be determined by the amount of deleveraging that is needed in the UAE banking system and how hard the crisis will impact asset prices and the real estate sector.

However, O’Neill was confident that the worst of impact had been “largely contained in Dubai".

The announcement on Monday that the government of Abu Dhabi and the UAE Central Bank had agreed to provide $10bn to the Dubai Financial Support Fund, allowing Dubai World to repay the maturing $4.1bn Islamic sukuk bonds, was a positive move said O’Neill.

“This event puts a focus on the willingness and ability to pay and we have now had an assurance of the ability to pay and for local banks this is extremely important. I don’t see this as a total salvation but I do see it as necessary and a positive first step...a first of many [but] we can’t make any assumptions about the path from here,” he said.

Amir Sadr, head of the Middle East Wealth Management business for Merrill Lynch, said he believed that the announcement that some of the funds from Abu Dhabi and the UAE Central Bank will be used to pay trade creditors and contractors would be “very good news for the prospects of Dubai next year.”

“New laws for guidance for transparency and protection for creditors are exactly the two things foreign institutions and companies have been looking for,” Sadr added.

From a global perspective, O’Neill forecast that equities were expected to outperform corporate and government bonds in 2010. He also believed that unemployment in the US will peak in the first half of 2010, which will lead to increased consumer spending in the US.

In the currency world, be predicted that the dollar would recover in 2010, on the back of rising US consumer confidence, while the euro was expected to weaken.

In commodities, he said oil was expected to trade at an average of around $85 a barrel, natural gas would continue to recover and gold was expected to average at around $1,500 per ounce.

The sectors Merrill Lynch highlighted as positive for 2010 were technology, oil and gas, basic resources, industrials, media and food and beverage. Rated negatively were financial services, chemicals, healthcare and utilities.