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UAE Economy may Contract if Global Crisis Worsens: Mansouri

The outlook expressed by Sultan bin Saeed Al Mansouri marked a turnaround from past statements by government officials. As recently as February, Central Bank Governor Sultan bin Nasser Al Suwaidi said he expected the UAE to see “low single-digit” growth in 2009.

Countries in the Gulf region have been reluctant to concede that their economies, which boomed during a six-year rally in crude oil prices, could contract as demand for petroleum slumps. The UAE is the world’s fifth-biggest exporter of oil and last year generated 48 per cent of its gross domestic product from shipments of crude.

“There could be some contraction... it depends on what happens in the world economy as a whole in the second half …,’’ said the minister, Sultan bin Saeed Al Mansouri, speaking at a news conference in Dubai. “I’d like to be conservative and say that the UAE will be affected by the slowdown in the world economy.”

However, he added that the government is “ready to address any kind of issues with regards to liquidity that may affect the economy of the UAE.”

Dubai has suffered a sharp downturn in its property market -- a pillar of the local economy – and the emirate, together with federal help, is trying to buttress real estate companies hit hard by tumbling prices for offices and homes. In one such effort, Al Mansouri ruled out the possibility that the government would close down Dubai’s two largest mortgage lenders – Amlak Finance and Tamweel.

“There are some options under consideration but these lenders will not be liquidated,” the minister said at Thursday’s conference. “A merger of the two mortgage providers will be a good option.”

The federal government took these two lenders under its control in November, after they suspended new home loans due to their mounting debts and cancellations of new projects. Officials set up a committee last month to decide whether to merge, liquidate or restructure Amlak and Tamweel. The committee completed its review merger on March 10 and submitted its report to the cabinet.

“It is the government’s responsibility to make sure that no entities, whether it is Amlak, Tamweel or others, can be affected by this kind of crisis,” Al Mansouri said. “No big companies have requested extra liquidity until now.”

Dubai announced a $20 billion bond programme in February; the federal government bought half of them. Dubai officials have said the proceeds from the sale of these bonds will help government-affiliated companies, including property firms.

On Sunday, President His Highness Shaikh Khalifa bin Zayed Al Nahyan dismissed rumours that oil-rich Abu Dhabi would bail out its neighbouring emirate Dubai only on the condition that it gained control of some of Dubai’s major assets. His expression of explicit support for Dubai reassured investors and buoyed the nation’s stock markets.

Al Mansouri, the economy minister, stressed in his comments to reporters that the UAE would probably be less affected by the global recession than other parts of the world.

Still, oil prices are a key determinant of the UAE’s economic health. The nation’s yearly nominal gross domestic product grew by an estimated 9.4 per cent in 2006, 7.4 per cent in 2007 and an estimated 6.4 per cent in 2008. Oil accounted for more than 40 per cent of the country’s GDP in each of these three years. Crude oil prices peaked at $147 per barrel last July. Crude futures trading on Wednesday on the New York Mercantile Exchange closed at $48.14 a barrel. — With inputs from agencies

· abdulbasit@khaleejtimes.com