Economists gave a mixed reaction to the official UAE economic growth forecast of up to 3.2 per cent this year, which was revealed yesterday by the Ministry of Economy. The economy would expand by that rate if oil averaged a price of US$85 over the year, said Sultan al Mansouri, Minister of Economy.
"I think that 3.2 per cent for GDP growth is a little optimistic, unless there is a substantial increase in the level of oil production, which does not look likely," said John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh. "I am sticking to my forecast of around 2 per cent, the bulk of that coming from Abu Dhabi and not from Dubai." Speaking in Dubai at the launch of the UAE 2009 economic report, Mr al Mansouri said he was optimistic the UAE was recovering from the global financial slowdown.
"It [GDP] depends on what happens with the price of oil but it should settle between $80 and $85." However, if oil averaged $75 for the year, GDP growth would be lower at about 2.5 per cent, he said. Oil was priced at $74 a barrel on Friday. The report on the country's economic performance last year, compiled by the National Bureau of Statistics, said it expected oil demand to increase near the end of this year, which will help absorb excess supply and maintain prices between $75 and $85 a barrel.
"I think oil prices are an important factor but much more significant variables will be a resumption of credit growth, access to international funding and progress in reforms," said Simon Williams, the regional chief economist at HSBC. He said he expected lower growth of 2 per cent this year. The IMF last week said it was standing by its growth forecast of 1.3 per cent for the UAE despite Dubai World's recent agreement on debt restructuring.
Record oil prices helped push GDP growth to 7.4 per cent in 2008 before the financial crisis sent crude prices down and triggered a downturn in the property sector. The Ministry's report said the UAE's economy remained underpinned by oil prices and its efforts to diversify its non-oil economy into sectors such as trade, tourism and high-end manufacturing. The share of the non-oil sector of the economy rose from 66.5 per cent in 2008 to 71 per cent last year, it said.
"The economy must begin to diversify into service sectors, most notably into trade, logistics, tourism, financial services and high-value manufacturing," the report said. Despite declining oil prices, the report said the economy avoided a recession to expand last year by 1.3 per cent, higher than some other estimates. The IMF estimated the economy shrunk by 0.7 per cent last year. Mr al Mansouri said the IMF figures were not necessarily as accurate as the Ministry's.
"We would recommend that you take our figures," he said. Given the global environment, the drop in oil production and the difficulties Dubai's economy experienced, a modest contraction in the UAE's GDP last year seemed likely, said Mr Williams. Dubai World this month announced a $23.5bn (Dh86.31bn) restructuring deal with its main lenders, helping to address the emirate's most pressing debt problem. Dubai's debt is estimated at about $107bn, equivalent to 136 per cent of its GDP, according to the Institute of International Finance.
Dubai last year received $20bn from Abu Dhabi and the central bank to stabilise the economy after property prices fell by up to 50 per cent from their highs in 2008. In response to growing demand from for hydrocarbons from Asia, the UAE planned to increase oil production, according to the report. tarnold@thenational.ae fkane@thenational.ae
