Uae Economy - Outlook

This information was last updated on 02 MAR 2012, 11:55 AM EST (16:55 GMT)

Outlook and Assumptions: Outlook
The UAE economy has largely shrugged off the regional turmoil, expanding by an estimated 5.4% in 2011, but faces stiffer headwinds going forward. Headline economic growth certainly will not see the same kind of support from the oil sector in light of the weakening external environment, with oil GDP growth easing back to 2.6% in 2012. Meanwhile, non-oil GDP will see softer growth as well, rising by 4.5% this year. Weaker external demand is expected to result in somewhat slower growth in trade and tourism; however, healthy demand from within the Middle East and Asia should prevent a repeat of the collapse in trade and tourism activity during 2009. Businesses and households will also likely err on the cautious side in terms of spending plans, at least over the next couple of quarters, given the deteriorating economic and financial conditions around the globe. Overall, we see real GDP growth edging down to 3.9% in 2012, before rising to 4.1% in 2013. Risks to the economic outlook remain. The UAE economy could very well see a bumpy road ahead, given the global growth slowdown and the escalating sovereign debt crisis in Europe. At this stage, however, growth in emerging markets is likely to be sustained at a still-healthy pace, which, coupled with the support from high oil prices, should help underpin activity in the UAE economy in 2012. With regards to the slumping real estate market, new supplies coming online have added to the supply overhang and further depressed prices, and we see the recovery dragging on through mid-2012 as well. Moreover, with the completion of numerous projects in 2011, activity in the property market will likely drop off as the public and private sectors takes a more prudent approach to real estate development. Heightened financial-market volatility also threatens to dampen business and economic conditions, and could have repercussions...