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UAE Economy may Contract in 2009, Says Central Bank
DUBAI — The United Arab Emirate’s central bank will keep interest rates low to spur growth, Governor Nasser Al Suweidi was quoted as saying on Wednesday, as the economy faces the possibility of contraction in 2009.
Suweidi’s comments were carried in an Arabic language daily.
The UAE’s overnight repurchase rate stands at 1 per cent. In contrast, interbank lending rates stand at 2.081 per cent for three months, 2.356 per cent at six months and 2.637 per cent for one year. “The prospects for UAE’s economic growth will be reduced in 2009 from a high single-digit figure to a low growth rate or maybe even negative, due to the current global financial crisis,” the newspaper quoted Suweidi as saying.
The central bank governor said monetary policy will aim to keep official interest rates at low levels in order to revive economic growth.
The combination of the global financial crisis — which pumelled Dubai’s property sector, forcing project cancellations and massive lay offs — and a decline in oil prices brought an abrupt end to the Gulf’s six-year oil-fuelled boom last year.
Deutsche Bank economist Caroline Grady projected UAE growth at 0.3 per cent for the year, compared to 7.4 per cent in 2008, based on an average oil price of $63.6 for the year.
But she said it was difficult to gauge the impact Dubai — which accounts for about 30 per cent of the UAE’s gross domestic product — would have on overall growth.
“There’s no monthly real economy data in the UAE so it’s very hard to know quite how hard Dubai has been hit, there’s no trade, no PMI (purchasing managers index). Credit has pulled back very sharply across the UAE,” she said from London.
But Grady said the absence of defaults in Dubai, unlike Kuwait where major investment firms have defaulted on loans, sent a good signal about the emirate’s economic health.
“Dubai has refinanced everything it needed to and we expect it will in Q4 even though that’s the peak of the redemption profile,” she said.
Dubai’s government and companies linked to it have refinanced about $9 billion of debt this year and have two major Islamic bonds maturing in the fourth quarter — developer Nakheel’s $3.52 billion sukuk on December 14 and a $1 billion Dubai Global sukuk on November 4. Suweidi also said he expected banks’ profits this year to be lower than last year, due to provisions booked against exposure to Saudi conglomerates Saad Group and Ahmad Hamad Al Gosaibi Brother (AHAB).
The newspaper said Suweidi said the UAE economy has emerged “from the bottleneck of the global financial crisis” but there were sectors, primarily property, which require more time to fully recover.
Reuters
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