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Tue 10 Feb 2009 02:04 PM

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EFG Hermes forecasts bleak year for Gulf

Investment bank warns UAE, Bahrain and Kuwait are exposed to worldwide recession.

The Arab world’s largest investment bank, EFG Hermes, has issued a bleak research note on its forecasts for economies across the GCC.

The bank expects Saudi Arabia, Qatar to outperform most markets because of their oil and gas surpluses.

Oman, it says, is relatively decoupled from global turmoil, but Kuwait, Bahrain and particularly the UAE are exposed to the worldwide recession, overheated economies at home, and cyclical downturns in key industries.

Dubai will be worst hit, the bank predicts, with the real estate and tourism slump extending well into this year, and its fallout infecting the broader economy.

“Dubai is still very much at the outset of a real estate crash and the full trickle-down effects of this into the real economy have yet to be fully appreciated,” the regional investment bank said in a research note.

A company official confirmed to Arabian Business that its previous forecast of a 20 percent decline in Dubai property prices this year is currently being revised downwards.

Anecdotal evidence suggests that real estate prices have fallen by as much as 35 to 50 percent in developments such as the Dubai Marina, Downtown Burj Dubai, and the Palm Jumeirah.

“We see little support for real estate prices in the near term and a bottoming of the real estate market effectively depends on the rate at which distressed sellers exit the market,” the bank said.

In addition to the companies directly involved in the real estate and construction sectors, those indirectly involved, including banks and advertising agencies, will suffer losses as key revenue dries up.

The resulting decline in Dubai’s expatriate population represents an additional threat for the city’s economy, which is already geared towards cyclical sectors such as ports, tourism and real estate. “As a result we would describe the emirate as being hyper-cyclical,” the bank said.

EFG Hermes predicts that there could be high profile casualties in Dubai this year, as weak business practices are exposed in savage trading conditions.

“The booming real estate market was likely to have covered up a number of questionable activities and the current collapse will likely bring the high profile ones to light…At some point over 2009 we would therefore expect a shock to the system resulting in substantial downward pressure on the stock market,” EFG Hermes said.

Such an event would test the enforcement of corporate governance as well as the strength of the regulatory and legal systems.

The good news: it would also rid UAE stock markets of the uncertainty that is currently prompting investors to assume a worst case scenario. To that end, EFG Hermes believes that the earlier it takes place, the better.

EFG Hermes remains positive on the defensive telecom, consumer staple and utility sectors. It is cautious on exposure to infrastructure spend in the region during the first half of this year due to the volatile oil price.

Arabian Business digital magazine: read the latest edition online

zainab fakhruddin 11 years ago

thousands of people fleeing the country who make the population and are integral part of the economy ...goverment should take a concrete step towards job cuts and people leaving the country. As the EFG HERMES report states its a HYPER CYCLICAL RECESSION EFFECT, things looks worst this year if no strong measures to prevent the damages are taken. ITs better LATE than NEVER! dubai was a dream and now has turned into a NIGHTMARE. GOverment should help people to stay and biuld the dream again along the vision of HIS HIGHNESS SHK MOHAMMAD.

Tony 11 years ago

There is much talk of a decline in tourism in Dubai along with the current turmoil, but the hotels do not seem to know this as you still are charged AED 2000 per night for many 5 star hotels in Dubai! Who will come and boost the tourism at these rates? Few years back the rates were near AEd 500 per night, have they really increased their salaries by 400%? Surely, if we want the economy to get a boost the hotel rates MUST fall!

jenny 11 years ago

Dubai is become very expensive and in todays situation one will definetly think twice before taking a holiday here. With high cost of VISIT VISAS and expensive hotel rates and indirect taxes in dubai life is not affordable any more. and in Addition school fees HIKES..whats going on?? In addition Banks have become more tight in providing mortages etc. why??? - where is all the money promised by the goverment gone??? - where are the people accountable of this questions