Economists foresee a rosier economic outlook next year as the UAE gains momentum from stable oil prices and robust emerging markets.
Growth should accelerate to 3.5 per cent next year, according to the average forecast in a poll of 10 leading economists by The National.
Only one of the respondents said they expected the economy to record lower expansion compared with this year. The IMF forecasts growth of 2.4 per cent this year.
"Growth is coming back," said Giyas Gokkent, the chief economist and head of research of the asset management group at National Bank of Abu Dhabi.
"Arguably, excessively rapid growth created vulnerabilities in the past."
Expected expansion next year is still about half the level of the peaks of the rapidly growing boom years when the country was catapulted forward by high leverage and runaway oil prices.
The poll asked respondents their views about the economy including signs for optimism and barriers to higher growth. Not all of those polled answered every question.
The results suggest parts of the economy would still be in a state of recovery from the depths of the global downturn.
They also provide a gauge as to where the UAE may rank within the global economic picture next year. Growth should outflank many developed countries in the West still grappling with debt and unemployment.
However, it will lag the top-performing BRIC countries - Brazil, Russia, India and China - and even most other GCC states.
The economists based their outlook on an average oil price projection of US$86 per barrel.
Respondents were split on the question of whether it was more likely the economy next year would outperform their forecasts than under perform. Four economists said the risks were more to the downside; three believed they were more to the upside. Two said risks existed in both directions.
An improving economic outlook for the UAE follows a period of transition since the global downturn.
The recession choked demand for oil, sending prices plummeting as low as $33 per barrel in December 2008. Declining valuations in the country's property market, a contraction in lending and debt from global investments that soured also hurt the economy. Some of these problems were cited by economists as barriers to higher growth.
Credit availability was attributed as a roadblock to growth by six economists. Some businesses, especially smaller firms, have complained that a lack of credit access was constraining their ability to expand. In addition, sluggish lending conditions are making it difficult for the Federal Government to offload some of the burden of driving the economy to private industry. Part of the problem is that banks remain hampered by their ability to lend until they improve their loan-to-deposit ratios. "The sharp slowdown in credit growth, if it persists, may expose problematic loans that have been masked by the generally favourable banking profitability conditions in the UAE," said Garbis Iradian, the deputy director of the Africa and Middle East department at the Institute of International Finance (IIF).
The property market was pinpointed as the economic sector all respondents said they were least optimistic about.
An oversupply of housing and offices in some areas means the market is expected to remain weak for the next year at least. Another concern is the handling of sovereign and corporate debts built up mainly in Dubai. Four respondents said the issue would inhibit growth.
Agreements with creditors of debt restructuring by Dubai World and, most recently, Dubai Holding, have helped avert fears of a large-scale default.
Dubai has US$24 billion (Dh88.15bn) of debt stemming from state-related companies coming due next year, according to the IIF. "There is still some residual anxiety about skeletons in the closet of Dubai Inc," said Jarmo Kotilaine, the chief economist for Saudi Arabia's National Commercial Bank. "Further restructuring would probably be far less disruptive than Dubai World but could still result in discontinuities."
Fast-tracking reform of laws surrounding the private sector is seen as a priority by the Government. Two respondents said failure to implement such legislation would be an impediment to the economy.
An array of reforms are awaiting approval on issues such as assisting small businesses and opening up foreign ownership limits for companies in certain sectors.
Foreign business groups have highlighted such reform as important to attracting more overseas private investment.
"Legislative issues need to be addressed because they bring down funding costs and increase the absorptive capacity of the economy," said Shady Shaher, the economist for the MENA region at Standard Chartered.
Asked which sector of the non-oil economy they were most optimistic about, trade, logistics and transport were highlighted by most economists.
Trade has proven one of the most resilient parts of the economy.
Last year Dubai, responsible for most of the country's non-oil exports, bucked a global decline to record world trade growth of 23 per cent.