The IMF has downgraded its forecast for the UAE's economic growth to near zero, as Dubai World's debt restructuring and the emirate's property sector continue to drag on the national economy. The fund revealed last night that the economy contracted by 0.7 per cent last year, largely due to declining oil production.
But the IMF, based in Washington, added that while Dubai's economy would continue to contract, Abu Dhabi was expected to show growth this year. The IMF had expected the Emirates' economy to grow by 2.4 per cent this year, having adjusted a forecast of three per cent made before Dubai World's announcement in November that it was seeking a debt standstill. "In 2010, overall GDP growth will be about flat," said Dr Masood Ahmed, the IMF director for the Middle East and central Asia. "Within that, we expect some continued contraction in Dubai and positive growth in Abu Dhabi. In 2010, we believe that the restructuring in the real estate side of Dubai will continue to be a drag on growth." The IMF expects UAE growth of between zero and one per cent this year, he said.
Dr Ahmed said after meetings with government officials that the IMF was "very encouraged" by the way the restructuring of Dubai World had begun, but the situation would affect the economy. The IMF yesterday raised its forecast for economic growth in the Middle East this year to 4.5 per cent from its earlier 4.2 per cent. It said in its update to its World Economic Outlook that the region's economies might expand 4.8 per cent next year.
The IMF kept its baseline oil price forecast for this year unchanged at $76 a barrel. It raised its projections for next year by $3 to $82 a barrel, the report said. Economists broadly expect to see the economy return to a more modest level of growth this year than the accelerated pace of the years before the global downturn. But Dubai's debt could cast a shadow over its growth prospects, with more than $13 billion (Dh47.74bn) estimated to be owed this year by the emirate and companies it controls. Questions over the health of another Dubai conglomerate, Dubai Holding, could also dim prospects this year.
But a resurgence in oil prices should help to sustain growth in the nation, while a recovery in the global economy, and China in particular, will benefit the UAE through trade, economists say.
tarnold@thenational.ae