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Tue 26 Aug 2008 06:30 PM

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Abu Dhabi economy could hit $179bn by 2010

Emirate's planning council releases report showing expansion of non-oil sector.

Abu Dhabi's economy could grow to $179.1 billion by 2010, more than double its level in 2005 as the non-oil sector expands, although inflation poses a risk to growth, the emirate's planning council said on Tuesday.

The economy of the capital emirate of the UAE - the world's fifth largest oil exporter - should expand 54.4 percent in real terms over the five-year period, and could almost double again between 2010 to 2020, the Abu Dhabi Department of Planning and Economy said in a report.

Abu Dhabi is investing windfall oil revenue from an almost six-fold rise in oil prices since 2002 into diversifying its economy away from a reliance on oil exports, funnelling money into real estate and heavy industry.

"The growth is enormous but we have a slight fear about inflation; it is diminishing growth," said Ahmed El-Minnawi, an economist at the department and report author.

"Up to 5 percent inflation is reasonable for any economy, and more than 5 percent causes so many problems," Minnawi said.

Inflation in Abu Dhabi hit 11.9 percent in the first quarter - almost on par with its level in 2007. UAE inflation of 11.1 percent in 2007 was the highest in at least 20 years.

Rises in consumer prices - including rents and food items - were the source of about 60 percent of inflation, while the rest has resulted from the UAE's currency peg to the weak US dollar and global commodity prices, Minnawi said.

Different government departments, the central bank and each emirate should work together to battle inflation, he said, without giving policy recommendations.

"In 2010 or 2011, we expect the real estate market will come to equilibrium and rents should stabilise, so inflation will come down by a huge percentage, maybe even to 5 percent," Minnawi said.

Meanwhile, the economy is set to surge. The state and private investors are set to invest about $163 billion in real estate projects in the emirate by 2030, according to a government projection last year.

Non-oil sectors would contribute to 45 percent of Abu Dhabi's GDP in 2010, up from 41 percent in 2005, and the oil sector's contribution to the economy would fall to 45 percent by 2020, the department's report showed on Tuesday.

By 2015, Abu Dhabi will account for 75 percent of total UAE economic growth, up from 68 percent in 2010 and 59 percent in 2005, it said. The economy was worth $79 billion in nominal terms in 2005. The role of the private sector in growth is also expected to grow to 21.4 percent in 2001 from 18.2 percent in 2007 - and hit 32 percent by 2015, Minnawi said.

Per-capita income in the emirate of 1.53 million people was $71,230 last year, compared with $35,000 in Japan and $32,000 in the European Union, he said. (Reuters)