Dubai economy to rebound: IIF

DUBAI – Dubai’s economy is set to bounce back with a projected 3.5 per cent growth in 2011 as the turmoil in the Arab world would indirectly boost the UAE’ overall economy, a leading global association of financial services firms, said on Thursday.

The Washington-based Institute of International Finance, or IIF, the association of more than 430 member institutions, said the UAE growth is expected to accelerate from 2.7 per cent in 2010 to 3.8 per cent in 2011 and to 4.0 per cent in 2012. “In contrast, growth in the GCC will accelerate in 2011 while the combined current account surplus is set to surge from $129 billion to $292 billion, raising the level of their gross foreign assets to $1.7 trillion by year end,” IIF said in its first Arab world report, “The Arab World in Transition: Assessing the Economic Impact.”

IIF said the UAE, the second largest Arab economy after Saudi Arabia,  would boost its economy through  higher production of crude oil in Abu Dhabi, larger revenues due to a spike in oil prices and a diversion to the country of some of the regional trade, transportation, tourism, and finance.

“Dubai’s economy is expected to recover significantly, growing by 3.5 per cent in 2011 as compared to 1.7 per cent in 2010,” it said.

Garbis Iradian, IIF Deputy Director for Middle East and Africa Department, said he expected credit in growth in the UAE to improve gradually in 2011 and 2012, supported by strong growth in deposits, improvement in liquidity of banks, and a pickup in domestic demand.

He said the UAE banks remain well capitalised and profitable. “Provisions now cover more than 95 per cent of non-performing loans. The liquidity of the banking system has also improved as indicated by the steady decline in the loan-to-deposit ratio, from 108 per cent at end-2008 to 95 per cent at end-March 2011.”

Iradian said Dubai has regained market access, but the cost of borrowing remains high, reflecting the rollover needs of the total of $31 billion falling due in 2011-12 and concerns about the solvency of restructured GREs. “Progress in structural reforms over the next few years, the strengthening of federal institutions, and the enhancement of transparency and governance in the corporate sector could accelerate the pace of economic growth to over  four per cent in the medium term,” he said.

“Unprecedented divergence unfolds in 2011 in Arab economies, posing exceptional challenges but also opportunities. For the oil importers, the economic toll from the political upheaval will translate into a collapse in growth in 2011,” he said.

Saudi Arabia’s economy is expected to return to strong growth of 5.3 per cent in 2011, underpinned by a significant increase in oil production and a 30 per cent increase government spending.

The IIF said its projections are based on estimated average prices of $115 and $110 per barrel respectively for 2011 and 2012, up from $80 per barrel in 2010.

“The strongest performer in the region is again Qatar, where overall real GDP is projected to grow by 18 per cent in 2011, driven by further large expansion in natural gas production and public investment expenditures.”

In Kuwait, growth is projected to accelerate from two per cent in 2010 to 4.4 per cent in 2011—spurred by government spending in the context of the government’s $107 billion investment plan (2010-2014).

Bahrain’s economic recovery has been interrupted and growth could slow to 2.9 per cent in 2011 from 4.5 per cent in 2010, with considerable downside risk if the situation goes unresolved for an extended period, the IIF said.

The IIF said growth in the GCC would accelerate from an estimated 5.1 per cent in 2010 to 6.5 per cent in 2011, driven by expansion in crude oil production and larger increases in public spending.

The report showed government spending in the GCC as a whole is projected to increase by nearly 25 per cent this year. “This would raise further the breakeven price of oil that balances their budgets.”

issacjohn@khaleejtimes.com