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Dubai economy to grow 4%

By REUTERS

DUBAI: Dubai’s government expects its economy to grow by up to four percent this year, helped by a recovery of trade and logistics sectors, although slow lending and debt repayments will remain a challenge.

The global financial crisis shelved projects worth billions of dollars in Dubai, a trade and tourism gate to the UAE known for its artificial palm-shaped islands. Its economy was further hit by debt troubles in state-owned firms last year.

Recovery of its trading partners, mainly India, is seen helping boost 2011 growth of the emirate, which accounts for almost a third of the UAE’s gross domestic product.

“Given the vibrant recovery of trade and logistics sectors, growth will accelerate in 2011,” Mohammad Lahouel, chief economist at Dubai’s Department of Economic Development, told a conference on Dubai’s economic outlook.

“A conservative estimate would put growth in 2011 between 3 and 4 percent, but closer to 4 percent,” he said.

The International Monetary Fund’s sees the economic output of the emirate, whose overall debt pile is estimated at around $115 billion or 144 percent of GDP, expanding by 2.8 percent in 2011.

“There might be a very little government stimulus in 2011. In 2012, the stimulus is going to continue to be modest,” Lahouel said.

Dubai, which lacks oil wealth, cut its budget gap to around 1.1 percent of GDP for this year as planned spending fell to 33.68 billion dirhams ($9.2 billion), both the smallest since 2007.

The UAE, the world’s No 3 oil exporter, has so far avoided the turmoil challenging regimes in nearby Bahrain, Oman and Yemen, and it plans to spend $1.6 billion on infrastructure, boost military pensions and keep prices for essentials down.

Real GDP is estimated to have grown by 2.2 percent last year, its statistics center said this month, above the IMF’s forecast of 0.5 percent. It contracted by 2.4 percent in 2009, more than expected, as the property sector plunged.

“The real estate story is obviously having an impact on some of the corporate sector and the financial sector balance sheets, and that will pose a challenge in the medium term,” said Farouk Soussa, Middle East chief economist at Citi in Dubai.

“The other challenge is the ongoing mismatch in maturities in the Dubai debt profile,” he said.

Concerns about the indebtedness of Dubai’s state companies have eased after government-linked Dubai World [DBWLD.UL] sealed a deal last September to restructure almost $25 billion of debt.

Worries still persist about the ability of Dubai and some of its companies to repay bonds and loans worth billions of dollars over the next four years with banks still hesitant to lend.

Banking sources said earlier in March, Dubai’s sovereign wealth fund, Investment Corporation of Dubai (ICD), has asked banks to submit proposals on a new $4 billion loan refinancing, the largest to emerge from the emirate since its 2009 crisis.

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