UAE gains ‘tailwinds’ from Middle East unrest

UAE gains ‘tailwinds’ from Middle East unrest

The UAE, in particular Dubai, will continue to benefit from its safe-haven status at a time of continued Middle East unrest although the deteriorating global outlook spells risks for the country, Citigroup said.

The expected surge in the inflow of tourists and investments into the UAE in the backdrop of unrest in some countries in the region will “provide significant tailwinds” to the country’s tourism and banking industries, Citigroup said its Global Economic Outlook ?and Strategy.

While the UAE’s real gross domestic product, or GDP, is projected to grow by 2.2 per cent in 2011 and 2.3 per cent in 2012, its consumer price index or inflation level is poised to surge two per cent in 2011 and 2.4 per cent in 2012. Exports will grow at the rate of 13 per cent in 2011 and 2012, while imports will surge by an average 15 per cent during the same period.

UAE’s fiscal balance will remain flat in 2011 and 2012, but its current account will shrink from $21.7 billion in 2010 to $9.6 billion in 2011 and $8.5 billion in 2012, the banking group said.

“The deteriorating global outlook spells risks for the UAE on three fronts, and we now consider risks to our economic forecasts to be to the downside,” wrote analyst Farouk Soussa of Citigroup.

“First, the fall in global oil prices in recent months will squeeze revenues at the Abu Dhabi level, and we have already seen that emirate begin to pull back from some previously anticipated investments, particularly in the non-oil sector. Second, slower growth in global demand may impact Dubai’s ongoing recovery, dependent as it is on global trade, tourism and transportation.”

The analyst said the retrenchment in global risk appetite would expose entities in the UAE to heightened refinancing risks if financial conditions remain tight in the medium term. “That said, we believe that Dubai in particular will continue to benefit from its safe-haven status at a time of continued Middle East unrest, providing significant tailwinds to its tourism and ?banking industries.”

The latest Citigroup figures also show a surge in domestic deposits in the UAE, easing previous liquidity constraints in the banking sector and creating conditions for a renewal of growth in bank lending. For Saudi Arabia, the bank predicted a GDP growth of 7.2 per cent in 2011 and 6.2 per cent in 2011. “We expect an average WTI oil price of $89 per barrel this year, down from $98 year to date, but believe government revenues are likely to remain buoyed by an increase in production.”

The Citigroup report also projected a fast deteriorating global growth prospects, both for advanced economies and emerging markets. It cut again its 2011-12 GDP growth forecasts for many countries, including the Euro Area, the UK, Japan, the US and Canada, with a modest downgrade for China and sharper cuts for Eastern Europe, Singapore, Hong Kong and South Africa.

“We expect early sovereign debt restructuring in the euro area, and for the euro area overall to slip back into recession in coming quarters,” analysts at Citigroup said.

They forecast global growth would slow from 4.0 per cent last year to 3.0 per cent this year (revised down from 3.1 per cent last month) and to 2.9 per cent in 2012 (revised down from 3.2 per cent last month and 3.7 per cent two months ago). PPP-(purchasing power parity) weighted, we expect global GDP growth to slow from 5.0 per cent in 2010 to 3.8 per cent this year and 3.6 per cent in 2012 (with our 2012 forecast cut from 3.9 per cent last month and 4.4 per cent two months ago).Citigroup said interest rates are likely to stay low, and negative in real terms, for a long period in the main advanced economies. ?— issacjohn@khaleejtimes.com

(KHALEEJ TIMES)