UAE economic growth to slow in 2012, says Standard Chartered

With political turmoil in the region boosting Abu Dhabi's oil industry and benefiting Dubai's trade, tourism and retail sectors, a 'flight to safety' effect helped the UAE grow at a 3.8% clip in 2011, the bank said in its latest economic forecast released yesterday. However, while these factors are expected to continue to drive the country's economy in 2012, growth is likely to moderate to 2.4% this year due to a more challenging global environment, the bank predicted.

Abu Dhabi is expected to outpace Dubai with growth of 3.0%, supported by a cautious resumption of spending in H1, followed by an acceleration in H2, as project reviews initiated in 2011 are completed. Dubai will see growth of 2.4%, with its tourism and retail sectors expected to remain the primary factors in the emirate's recovery. Hotel occupancy averaged 70-80% on average last year, nearing 100% during peak periods, as tourists turned their backs on less stable Middle East destinations, the report noted.

Inflation in the UAE is expected to average 1.6% in 2012, in comparison with a 2% forecast for 2011. Prices fell 0.1% y/y in October, the first month of deflation in 20 months. Housing makes up 39.3% of the inflation basket, dragging on overall inflation last year. Standard Chartered expect this to continue in 2012 given the significant and continued overcapacity in the UAE housing market.

Although the UAE is forecast to grow at a slower pace in 2012, its outlook is more positive than struggling nations in the west. The bank predicts a two-speed global economy this year, with an ailing Europe and North America, relative to a more robust Asia, Africa, Middle East and Latin America. The world economy cooled down from strong 4.3% growth in 2010 to around 3% in 2011, but the international banking group expects a more significant slowdown in 2012, due to the crisis in the West, with a predicted 2.2% growth for the whole year.

The mounting crisis in the advanced economies is expected to cause Europe (-1.5%) and the UK (-1.3%) to fall back into recession and US growth (+1.7%) to remain below-trend, the report said.
Chief Economist and Group Head of Global Research Gerard Lyons explained the global picture: "This points to the continuation of a two-speed world where a fragile West contrasts with a resilient East. It is a divided and disconnected world economy facing major policy dilemmas. Yet, no region is fully decoupled from events elsewhere. During the first half of 2012, problems in Europe and the West will weigh on global growth. By the second half, stronger growth across China and other emerging economies should pull up worldwide activity. It will be a recovery made in the East and felt in the West. If ever one needed to illustrate the shift in the balance of power, this is it."

With Mena countries being economically diverse amongst themselves, Standard Chartered Head of Research, Europe, Middle East, Africa and Americas, Marios Maratheftis highlighted their position in the global picture: "The economic and market implications of Europe's debt problems bring back memories of 2009. However, parts of MENA are in a significantly stronger position now. This is particularly true for the GCC economies, which we expect to show resilience, with growth decelerating only moderately in 2012."