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UAE’s Growth Predicted to Slow down to 2.7pc in 2009

DUBAI — UAE’s’ huge current account surplus, which was 20 per cent of its GDP last year, will cushion the impact of a global melt-down, but its economic growth appears to slowdown in 2009, Standard Chartered economists said on Monday.

Real economic growth in the UAE is likely to slow down to 2.7 per cent in 2009 compared with 4.8 per cent forecast for this year. “given the global economic outlook, we should be happy with this number,” Marios Maratheftis, Standard Chartered regional head of research, said.

“The UAE, like other GCC countries, has massive current account surplus, and is not dependent on foreign investment. It is a net lender in the world, not net borrower,” he said.

Maratheftis said the move by the UAE government to guarantee bank deposits to counter pressure from the global financial crisis was designed to pre-empt any domestic ramifications.

“They are not waiting for problems. We can see what is happening in the rest of the world and the policy makers here are ahead of the curve,” he said.

Although, the UAE is well insulated against the global turmoil, it is not isolated.

“The UAE growth will be dragged down as a sharp drop in international trade is expected, coupled with a drop in tourism and lower investments due to expensive credit,” he said.

“The cost of credit is expected to remain high and consequently investments will dry up. Property prices are expected to stay flat, registering zero growth in 2009, while inflation is expected to remain 12 per cent this year and 8 per cent next year,” said Maratheftis.

UAE’s GDP recorded 9.6 per cent growth in 2006 and 7.4 per cent growth in 2007 as its current account surplus surged to Dh135.9 billion last year.

Alex Barrett, global head of client research at Standard Chartered, said countries in the region appear poised to emerge as winners after the crisis.

“The crisis means the shift of economic and financial power from the West to the East will accelerate, and the winners in the developing world are going to be those with current account surpluses,” he said.

Barret said China and Gulf states would be the least affected as they have been international lenders rather than borrowers. India will slowdown in 2008 and 2009 but is expected to grow faster than China from 2010.

“The point of maximum pessimism is over. Investor confidence is slowly being restored because of coordinated policy response.”

Dollar will be strong till the first half of 2009 but expected to weaken during the second half, he added.

· issacjohn@khaleejtimes.com