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IMF Sees UAE Economic Growth Slowing To 2.3% This Year

IMF Sees UAE Economic Growth Slowing To 2.3% This Year

The International Monetary Fund (IMF) said on 14 March that it expects the UAE’s GDP growth to slow to 2.3% this year from 4.9% in 2011 amid limited potential for further near term increases in oil production. Non-oil growth was up 2.7% in 2011 on improved trade, tourism and manufacturing activity and is expected to further strengthen 3.5% in 2012, said the IMF. After concluding its Article IV consultation mission to the UAE, it noted that inflation is likely to remain subdued this year at 1.5%. The IMF’s Harald Finger, who led the UAE mission, warned that risks include weak growth prospects for advanced economies which could push down oil prices. Furthermore, worsening global financing conditions could make it more difficult to roll over some of the government related companies’ external debt and impact liquidity in the banking system. “In this environment, the authorities’ plans to gradually consolidate fiscal policy are appropriate. The large increases in public expenditure that took place in response to the 2009 crisis should now be unwound as they expose the UAE to the risk of falling oil prices,” he said.

Mr Finger welcomed progress in the debt restructuring of government-related entities, noting that several are still undergoing the process of restructuring and are faced with high refinancing needs and continued reliance on foreign funding. “While they are increasingly managing their upcoming rollovers proactively, the current uncertain global financial environment still constitutes a key risk,” he said, urging improved transparency. UAE Finance Minister Shaikh Hamdan bin Rashid Al Maktoum said on 13 March that Dubai’s government-related companies were in good shape, echoing recent comments from other Dubai officials. However, he quashed expectations that the UAE would issue its first federal sovereign bond this year.

Meanwhile the IMF said that the UAE’s banking sector remains resilient to shocks, thanks to substantial liquidity and capital buffers. Furthermore, despite a rise in non-performing loans since 2008 it is well-capitalized. “However, care should be taken to avoid a further increase in banks’ loan concentration to the government and government related entities,” said Mr Finger.

Economy Minister Also Sees Lower Growth This Year

While his estimates differed from the IMF, the UAE Minister of Economy Sultan al-Mansuri also sees a slight slowdown in growth this year. He put the UAE’s economic growth at 3.3% last year and suggested it could slip to around 3% in 2012. He made the comments last week on the sidelines of a visit to Canada, where he headed a business delegation from the UAE. He said that inflation is not expected to exceed 2% this year, noting it is currently at around 1.5%. At the meeting he highlighted the growth of the UAE’s aviation sector, stating that Dubai International Airport is on course to become the world’s busiest for international passenger traffic with an average growth of 9% per year and 75mn visitors by 2015.

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