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By Richard Nield, for MEED
While other parts of the Middle East are struggling either to maintain political stability or to rebuild economies damaged by regime change and civil unrest, the UAE is enjoying a period of comparative tranquillity. Growth is continuing to recover following the global financial crisis, money is starting to flow through the economy and private sector credit is regaining momentum.
UAE growth forecast
Dubai-based investment bank Shuaa Capital is forecasting gross domestic product (GDP) growth of 4.2% for 2011, up from 2.2% last year and -2.7% in 2009. Other forecasts are more modest, but all show increased economic growth. Riyadh-based Banque Saudi Fransi expects the economy to expand by 3.5%-4% in 2011, while Kuwait-based Gulf Investment Corporation (GIC) is forecasting 2.5%-3% growth.
Growth in broad money supply is expected to increase, from 7% in 2010, to 12% in 2011 and 14% in 2012, according to Shuaa Capital, while private sector credit growth, which slowed to just 1% in 2010, is forecast to increase to 6.5% in 2011 and 9% the following year. Inflation, meanwhile, remains under control, nudging up to 2% in 2011 from 0.9% in 2010.
The expectations of such a strong recovery in the UAE while so many other economies in the region are struggling, are based on two key factors: political stability and increased oil revenue. Although it has become dangerous to assume that any country in the region is immune from political instability, the UAE is considered to be one of those with low risk.
"Now we have problems in Bahrain and other parts of the Middle East, the UAE stands out as something of an oasis of stability," says Christian Koch, director of international studies at the Gulf Research Centre in Dubai.
Growth in tourism receipts, bank deposits
The UAE has even benefited from the instability and uncertainty elsewhere. Tourism receipts have grown as regional holiday-makers forego other parts of the Middle East, particularly North Africa, and there has been an inflow of bank deposits from investors seeking a safe home for their capital.
"We've seen a jump in deposits in the first quarter of 2011, meaning there has been increased liquidity in the banking system," says Khatija Haque, an economist at Shuaa Capital. "People are very confident in keeping their money here and there's been a huge boost to tourism. Those who would have gone to Egypt and perhaps Bahrain, have changed their plans and come to the UAE. There has been an increase in occupancy rates and average spend per room."
Even the crisis in Libya has had positive consequences for the UAE. Not only has it been one of the countries to boost oil production to make up for lost output from Libya, but in doing so, it has also benefited from increased market prices. Oil earnings are expected to rise to $104.8bn in 2011, compared with $79.3bn last year, while economic growth in the hydrocarbons sector will accelerate to 7.6% from 3.0%, according to Shuaa Capital.
"Abu Dhabi is going to get a huge boost from increased oil production in the first quarter of 2011 and that is likely to continue," says Haque.
Staff
