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122745
Tue, 05/18/2010 - 14:35
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https://oananews.org//node/122745
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UAE's real GDP expected to grow 2%: IIF
Abu Dhabi, May 18, 2010 (WAM)- The UAE's real GDP is expected to grow at moderate rates of two per cent this year and 2.7 per cent in 2011, forecast the Washington-based Institute of International Finance (IIF) according to a report in "Emirates Business."
"With a successful resolution of Dubai World's debt issues, especially if this sparks an acceleration of reforms, growth could reach 2.7 per cent this year and 4.3 per cent next year," said IIF in its latest "GCC Regional Overview" released yesterday.
Dubai World's debt refinancing challenges should be viewed in the wider perspective of the UAE economy and in the context of the global financial crisis that severely affected all credit markets, the overview said.
The fallout from Dubai World's debt problems will likely have a measurable but limited impact on growth prospects in the UAE, less so for other GCC economies. The ability of Dubai to continue to attract foreign capital will suffer a temporary setback but could recover once the relationship between the government and the government-related entities (GREs) is clarified and governance structures and financial transparency and disclosure are improved.
The continued strength of the Abu Dhabi and regional economies as well as recovery in global conditions will help mitigate the impact of the recession in Dubai as growth in the emirate's core activities of trade, tourism and financial services picks up, it added.
However, the restructuring of Dubai World's debt will have a moderate impact on domestic liquidity and economic activity, IIF said, although some banks with significant exposure to Dubai World will need to strengthen capital buffers. This may constrain the supply of credit, which, in combination with continued weak demand, will likely keep credit levels in Dubai stagnant in 2010. In Abu Dhabi, however, credit could grow between eight per cent and 10 per cent.
However, it said Dubai's economy could shrink again by 0.5 per cent this year after an estimated three per cent contraction last year. The continued retrenchment in construction and real estate sectors will more than offset the modest recovery in the emirate's core activities of trade, retail sales and tourism.
Abu Dhabi's non-hydrocarbon GDP growth is forecast at 4.5 per cent, a marginal increase over last year.
The IIF said the current crisis has reduced medium-term growth prospects in the GCC as well as in other regions. However, the GCC is emerging from the global recession and the overall current account is expected to widen over the next two years. The region's revenue from oil and gas will rise from $323 billion (Dh1.18 trillion) in 2009 to $419bn in 2010 and $457bn in 2011. The current account surplus will widen from $48bn in 2009 to $129bn in 2010 and $165bn (equivalent to 15 per cent of GDP) in 2011.
The large net foreign assets of the GCC will continue to provide substantial funds to sustain robust government spending levels in the next few years.
"The outlook for growth is a fairly healthy recovery. Except for Asia, the GCC would record this year and the next year the highest growth in any emerging markets," said Dr George T Abed, Senior Counsellor and Director of the Middle East and Africa Department, IIF.
The countries of the GCC are returning to solid growth, underpinned by higher oil prices that are supporting production and exports, robust government spending and some normalisation of global trade and capital flows. Overall, the GCC's real GDP is projected to expand by 4.4 per cent in 2010 and 4.7 per cent next year, as compared with 0.3 per cent growth in 2008. Over the medium term, growth prospects would be further enhanced by deeper structural reforms. Inflation in the Gulf is expected to remain contained, the overview noted, as large output gaps and further decline in rents (an important component of the CPI) persists.
Dubai's rapid growth in 2002-2008, which depended on leverage and debt, will need to change significantly. It is likely that, as a result of setbacks in some sectors due to the crisis, the GCC economies may shift to a lower but more sustainable growth path of four-five per cent over the medium term, as compared to an average of about seven per cent in 2003-2008.
On the region's financial sector, it said while the sector is well capitalised, a further rise in non-performing loans and the need for higher provisioning suggest that bank balance sheets are likely to remain constrained.
Development of local debt markets could partly offset this constraint and help fill the funding gaps, which recently widened as a result of a more difficult global funding environment.
Further development of the debt market, which is showing some signs of revival, will facilitate the creation of a yield curve, help GREs improve their debt maturity profiles and liquidity positions and induce improvements in corporate governance, under the scrutiny of more rigorous capital market requirements, it said.
IIF also expects the GCC currencies' pegs to the dollar to be maintained.
"With a successful resolution of Dubai World's debt issues, especially if this sparks an acceleration of reforms, growth could reach 2.7 per cent this year and 4.3 per cent next year," said IIF in its latest "GCC Regional Overview" released yesterday.
Dubai World's debt refinancing challenges should be viewed in the wider perspective of the UAE economy and in the context of the global financial crisis that severely affected all credit markets, the overview said.
The fallout from Dubai World's debt problems will likely have a measurable but limited impact on growth prospects in the UAE, less so for other GCC economies. The ability of Dubai to continue to attract foreign capital will suffer a temporary setback but could recover once the relationship between the government and the government-related entities (GREs) is clarified and governance structures and financial transparency and disclosure are improved.
The continued strength of the Abu Dhabi and regional economies as well as recovery in global conditions will help mitigate the impact of the recession in Dubai as growth in the emirate's core activities of trade, tourism and financial services picks up, it added.
However, the restructuring of Dubai World's debt will have a moderate impact on domestic liquidity and economic activity, IIF said, although some banks with significant exposure to Dubai World will need to strengthen capital buffers. This may constrain the supply of credit, which, in combination with continued weak demand, will likely keep credit levels in Dubai stagnant in 2010. In Abu Dhabi, however, credit could grow between eight per cent and 10 per cent.
However, it said Dubai's economy could shrink again by 0.5 per cent this year after an estimated three per cent contraction last year. The continued retrenchment in construction and real estate sectors will more than offset the modest recovery in the emirate's core activities of trade, retail sales and tourism.
Abu Dhabi's non-hydrocarbon GDP growth is forecast at 4.5 per cent, a marginal increase over last year.
The IIF said the current crisis has reduced medium-term growth prospects in the GCC as well as in other regions. However, the GCC is emerging from the global recession and the overall current account is expected to widen over the next two years. The region's revenue from oil and gas will rise from $323 billion (Dh1.18 trillion) in 2009 to $419bn in 2010 and $457bn in 2011. The current account surplus will widen from $48bn in 2009 to $129bn in 2010 and $165bn (equivalent to 15 per cent of GDP) in 2011.
The large net foreign assets of the GCC will continue to provide substantial funds to sustain robust government spending levels in the next few years.
"The outlook for growth is a fairly healthy recovery. Except for Asia, the GCC would record this year and the next year the highest growth in any emerging markets," said Dr George T Abed, Senior Counsellor and Director of the Middle East and Africa Department, IIF.
The countries of the GCC are returning to solid growth, underpinned by higher oil prices that are supporting production and exports, robust government spending and some normalisation of global trade and capital flows. Overall, the GCC's real GDP is projected to expand by 4.4 per cent in 2010 and 4.7 per cent next year, as compared with 0.3 per cent growth in 2008. Over the medium term, growth prospects would be further enhanced by deeper structural reforms. Inflation in the Gulf is expected to remain contained, the overview noted, as large output gaps and further decline in rents (an important component of the CPI) persists.
Dubai's rapid growth in 2002-2008, which depended on leverage and debt, will need to change significantly. It is likely that, as a result of setbacks in some sectors due to the crisis, the GCC economies may shift to a lower but more sustainable growth path of four-five per cent over the medium term, as compared to an average of about seven per cent in 2003-2008.
On the region's financial sector, it said while the sector is well capitalised, a further rise in non-performing loans and the need for higher provisioning suggest that bank balance sheets are likely to remain constrained.
Development of local debt markets could partly offset this constraint and help fill the funding gaps, which recently widened as a result of a more difficult global funding environment.
Further development of the debt market, which is showing some signs of revival, will facilitate the creation of a yield curve, help GREs improve their debt maturity profiles and liquidity positions and induce improvements in corporate governance, under the scrutiny of more rigorous capital market requirements, it said.
IIF also expects the GCC currencies' pegs to the dollar to be maintained.
