The GCC region is seen growing by 4.2 percent in 2010 but will be weighed by sluggish growth in the UAE as a result of Dubai’s debts, Merrill Lynch said on Thursday.
In its latest MENA Strategy report, it said the UAE would see growth of just 1.3 percent this year, the lowest growth predicted among countries in the region.
Real GDP growth in the UAE is also seen trailing behind in 2011 with 2.4 percent growth amid a GCC growth rate of 4.5 percent, the report added.
“We expect significant deleveraging in Dubai and a further damage in corporate balance sheets across the UAE,” Merrill Lynch said.
“As Abu Dhabi and Dubai economies are intertwined with low level of transparency, it’s hard to assume that Abu Dhabi will escape unscathed from Dubai restructuring.
The report added that the UAE’s total debt redemptions over the next three years would average about $30bn annually with Dubai responsible for about two-thirds of the debt.
“Hence a scenario for forced deleveraging that will hurt UAE corporates is still likely despite Abu Dhabi’s strong fiscal muscle,” it added.
Elsewhere in the GCC, Merrill Lynch predicted that Qatar would continue to drive growth with real GDP growing by 12.6 and 9.5 percent over the next two years.
“For now, Qatar stands tall with its strong sovereign balance sheet and the ongoing LNG expansion, which keeps headline growth high despite much weaker non-oil economy,” the report said.
Merrill Lynch also said it believed Saudi Arabia would post a strong recovery in 2010 (3.9 percent) with 4.6 percent growth next year.
It warned that the key drag on growth could be the “lagging credit growth despite cash risk banks”.
It also said Oman was likely to see the biggest growth in non-oil sectors (about five percent), a result of being behind its Gulf neighbours in the infrastructure and real estate boom years.
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