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UAE to Avoid Recession, Inflation to Slow to 2.5pc

ABU DHABI — The UAE is forecast to post a marginal economic growth of 0.5 per cent during the year 2009, the lowest in the Gulf Cooperation Countries (GCC).

'Inflation will also lower to yearly average of 2.5 per cent, while current account will be 10.5 per cent of the GDP', said Marios Marathefis, in a research note on Thursday.

“A real growth of 0.5 per cent and inflation of 2.5 per cent means that in nominal terms the economy will grow by three per cent”, said Mario Maratheftis regional head of research at Standard Chartered Bank, in a comment with Khaleej Times.

Qatar will lead the GCC nations in economic growth with 4.5 per cent, followed by Bahrain 2.5 per cent and Oman 2 per cent. Kuwait is forecast to grow by 1.5 per cent and Saudi Arabia by one per cent.

Qatar is forecast to see six per cent inflation, in the year 2009, highest in the region, to be followed by Saudi Arabia and Oman where inflation may shrink to four per cent. Bahrain will experience lowest inflation of 1.5 per cent and Kuwait is forecast to register an inflation of three per cent.

According to the research note, the first half of the year would be most challenging but given the strong structural positives, GCC economies are expected to start staging a moderate recovery in the second half of the year.

“With the world economy in recession, there will be downside risks to growth. Structurally, the GCC is healthy, with large current account and budget surpluses providing the authorities with significant ammunition to deal with the cyclical headwinds’, says research note on GCC economy.

It said the impact of the deteriorating global environment cannot be ignored. GCC countries are open economies, and already the impact on the ground is evident. “We have revised its our growth and inflation forecasts lower for 2009” it says.

Liquidity

Liquidity conditions in the UAE are beginning to ease, but they have not normalised yet.

The three month interbank market rate has fallen 37 basis point (bps) from December 7-January 7 period, currently at 4.05 per cent against 4.425 per cent on December 24, when Central Bank offered Dirham-USD swap facilities to banks of tenors ranging from one week to one year, which caused ease in liquidity.

The Central Bank has already provided Dh3.7 billion to banks with this swap facility. The swap facility introduced by the UAE Central Bank was a means to ease short term liquidity given the tightness in liquidity in local currency. Deposits could not keep up with aggressive credit growth.

As a result, the Central Bank introduced a Dh120 billion facility and later this swap facility.

haseebhaider@khaleejtimes.com