UAE economic growth to remain sluggish

The continued global economic uncertainty and a new conservative policy in Abu Dhabi mean UAE economic growth is set to slow in 2012

When the global downturn was biting in 2009, economists were gloomy about the outlook for 2010. But the consensus was that from 2011 onwards, economies around the world would gradually start to pick up and that they would strengthen further in 2012. These predictions were only partly right: 2010 was indeed a difficult year and there was a slight improvement in 2011. But 2012 now looks like it is going to be even harder than last year, not easier.

The same is likely to be true for the UAE. After a decline in economic growth of 3.5 per cent in 2009, the income from oil sales brought a return to moderate growth in 2010, with real gross domestic product (GDP) growth of 3.2 per cent. In 2011, the loss of almost all Libyan crude production from the global market pushed up Abu Dhabi’s oil earnings still further, underpinning economic growth of 4.3 per cent across the UAE. But economists predict that in 2012, the rate of growth will fall to about 3 per cent, the lowest for three years.

Slow economic growth

This slowdown can be explained by three factors: the impact of a continued economic downturn elsewhere in the world; the return of Libyan production to the global oil market; and the newly conservative orientation of the Abu Dhabi government’s economic policy.

The indirect impact of the global economic situation is the most significant of the three. Far from returning to healthy growth, many of the UAE’s trading partners look set for economic stagnation, while the expected recovery in Europe is not just stuttering, but grinding to a halt.

This will have a disproportionate impact on Dubai, whose economy is highly integrated with the outside world and relies heavily on non-oil growth.

“We’re expecting a slowdown in the UAE as a whole, mainly as a result of the expected slowdown in the global economy, which will affect Dubai’s non-oil economy,” says Andrew Gilmour, senior economist at Riyadh-based Samba Financial Group. “With so much of Dubai’s economy reliant on travel, logistics, trade and tourism, there’s not going to be much growth.”

Dubai’s tourism sector has been insulated from the worst of the slowdown as political turbulence elsewhere in the Arab region has diverted tourists to the emirate, one of the few parts of the Middle East not to be beset by instability. Other sectors are struggling and the recovery of the once-booming real estate sector looks as far away as ever.

“The property sector is on its back and this isn’t going to change any time soon,” says Richard Fox, head of Middle East and Africa sovereign ratings at US ratings agency Fitch Ratings.

The lingering global economic downturn puts further pressure on Dubai’s highly leveraged economy, both directly and indirectly. The lack of inward investment means that Dubai remains short of capital, while the financial problems elsewhere continue to depress the appetite of international banks to provide debt facilities.

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Richard Nield is a freelance journalist, photographer and filmmaker covering the Middle East and Africa. In 10 years covering the region, he has been published and broadcast by clients including the BBC, Reuters, Al Jazeera, The Economist, The Financial Times, The Independent and Foreign Policy magazine. He has reported from throughout the region, including Algeria, Egypt, Libya, Morocco, Tunisia, South Sudan, Jordan, Lebanon, Syria, Kuwait and Saudi Arabia.