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UAE Records 7.4 Per Cent Growth in GDP

ABU DHABI - Buoyed by last year’s surge in oil prices, the nation’s economic growth rate accelerated to 7.4 per cent in 2008, up from 5.2 per cent in the previous year, according to preliminary data that the government released on Wednesday.

The rapid increase in inflation-adjusted Gross Domestic Product (GDP) surprised economists who had expected a more modest rise. The data from the Central Statistics Department of the Ministry of Economy seemed to show that the financial crisis had only a minor impact on the UAE economy last year.

The effect of the crisis on last year’s performance was “relative and minimal,” Minister of Economy Engineer Sultan bin Saeed Al Mansouri said in a statement.

Still, the figures suggested that inflation could be one possible cause for official concern. The GDP data contained an imputed inflation rate of 18.6 per cent for 2008 -- significantly higher than the imputed inflation rate for 2007 of 11.0 per cent.

“The blanket, fast and effective actions taken by the government have assisted to [a] greater extent to regain balance for certain economic sectors, which encountered direct difficulties in the aftermath of the international financial crisis. Construction, real estate, financial services and oil, were some such sectors,” the Minister said in an official English translation from comments he made in Arabic.

“The effective actions taken by the government have contributed to guide some of these sectors into curative and disciplinary processes which may be beneficial in the long run.’’

Marios Maratheftis, the Regional Head of Research at Standard Chartered Bank, described the 2008 growth rate as “excellent” and “probably one of the best the world.”

But he said 2009 could be a challenging year, given the worsening economic downturn, and argued that the country could not hope to repeat last year’s extraordinary growth. The GDP growth rate could plummet to 0.5 per cent in 2009, yet even this slower growth rate would outpace that of most other countries, he said.

Dr. Giyas Gokkent, chief economist at the National Bank of Abu Dhabi, said GDP growth of 7.4 per cent exceeded his own forecast of 6.1 per cent, adding that “2008 was a fantastic year for the UAE, with the oil price running at $94 per barrel on average.”

However, Gokkent said his oil price forecast for 2009 is $45 per barrel. This lower price for the country’s most valuable export, together with the impact of the worsening global recession, might lead to flat or even negative growth in GDP this year, he said.

Al Mansouri agreed that the steep rise last year in oil prices was the main factor in GDP growth for 2008.

The average price per barrel for oil was about $94.50 in 2008, compared with $69.10 in 2007 – an increase of 36.8 per cent.

He said that the federal government would continue its spending on infrastructure projects this year, in spite of a decline in oil revenues since crude oil peaked last July at $147 per barrel.

The Minister predicted that the economy would overcome the effects of the global recession, he predicted, noting what he said were signs of a revival in financial markets.

Non-oil sectors accounted for 62.1 per cent of GDP in 2008, down from 64.1 per cent in 2007. The oil sector’s contribution rose to 37.9 per cent last year from 35.9 per cent in 2007.

The UAE’s trade surplus widened in 2008, as growth in the value of its exports outstripped its imports.

ramavarman@khaleejtimes.ae