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Growth of 1.3pc Seen this Year

DUBAI — In a sign that the UAE economy could be recovering faster than expected, Economy Minister Sultan bin Saeed Al Mansouri said on Wednesday that he foresees an annual growth rate for 2009 of 1.3 per cent.

The minister did not provide details, nor did he specify whether the projected growth rate was nominal or adjusted for the effects of inflation. Yet, his comments in an interview broadcast on Al Arabiya television mark a possible brightening in the government’s economic outlook.

“This would be a good figure,” Al Mansouri said, remarking on the 1.3 per cent forecast. In September, the UAE Central Bank Governor said that the economy could contract or register a low growth rate this year.

Many economists have revised their growth forecast upwards. The International Monetary Fund said recently that the UAE economy would contract by less than it had previously expected. The IMF now forecasts that the country’s real Gross Domestic Product, or GDP, will shrink by 0.2 per cent this year, a much better performance than the 0.6 per cent shrinkage that it had predicted in May.

Private sector economists have been expecting real GDP growth to be flat in 2009. Late last year, Standard Chartered Bank projected a growth of 0.5 per cent for 2009, but it later revised its forecast and now expects the economy to decline by 0.5 per cent this year before growing by 3.3 per cent next year.

“Despite all the negative effects of the crisis, they have proven that our economy is solid and capable of absorbing its various ramifications,” His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, said in a speech to the Federal National Council.

“We are confident that the steps and measures that we have taken so far would contribute to the return of initiative to our economy... and continue the march of growth and construction with greater confidence and zeal.”

Among the steps that Dubai has taken to soften the effects of the downturn is the planned launch of the second tranche of a $20 billion bond programme in the current quarter. The UAE Central Bank bought the first $10 billion tranche.

Meanwhile, Central Bank Governor Sultan bin Nasser Al Suwaidi said that the UAE, which pegs the dirham to the US dollar, will wait for the US Federal Reserve to act before deciding whether to increase domestic interest rates.

“We are not prepared to raise the interest rate on the dirham before the US Federal Reserve because this will create for us other problems resulting from the inflow of additional money into the UAE economy,” Al Suwaidi told the Bloomberg news agency.

In contrast to previous years, there is now an alignment in the policy needs of the US and the UAE, said Giyas Gokkent, chief economist at the National Bank of Abu Dhabi. “You need low interest rates to support growth, and inflation is not a problem,” he said.

US Federal Reserve Chairman Ben Bernanke said on October 8 that the US Central Bank will be prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.”

The UAE Central Bank cut its repurchase rate by half a percentage point to 1 per cent in January, after making a similar reduction last October, when global credit were starting to seize up.

· business@khaleejtimes.com

· With inputs from Agencies