The UAE economy is projected to grow by around 3.5 per cent in 2012 as a result of strong performance in Dubai’s non-hydrocarbon sectors and massive public spending by Abu Dhabi, according to a key Saudi bank.
Overall GDP growth in the UAE and its five partners in the Gulf Cooperation Council (GCC) will also be likely healthy this year, with a forecast 4.2 per cent, the Saudi American Bank Group (SAMBA) said in a new report.
“Abu Dhabi’s recent commitment to press ahead with large-scale development projects will provide a boost to the UAE, which has already seen strengthening activity in Dubai’s traditional non-oil sectors, and help counter the adverse impact of slower global growth and restrictions on doing business with Iran,” it said.
The report showed strong crude prices and an expected rise in oil output would also allow the UAE to record healthy fiscal positions while inflation will remain subdued at around 1.5 per cent, the lowest in the region.
It forecast the UAE’s budget surplus at around seven per cent of GDP and the current account at nearly 13.8 per cent in 2012.
“Since our last report issued in late 2011 there have been a number of important global developments that have affected the economic outlook for the GCC. While there has been both good and bad news, and downside risks remain elevated, on balance we believe that growth prospects in the region have improved, and we have revised up our 2012 projections accordingly,” SAMBA said.
“Most significant in terms of growth rates is our assumption that average oil production this year will now be higher than in 2011 as GCC oil producers, particularly Saudi Arabia, maintain high output levels to satisfy any shortfalls – perceived or real – stemming from the announced sanctions on Iran.”
Combined with high oil prices, this will provide another surge in revenues which will support robust public spending and boost confidence, the study said.
It said confidence has already revived as fears of a financial crisis in the Eurozone this year have abated for now, and returning risk appetite has seen global liquidity flowing back into emerging markets, including the GCC.
“Overall we now project that GCC growth will hold up at 4.2 per cent in 2012, following over seven per cent growth in 2011, as a revised positive contribution from oil sectors combines with sustained non-oil growth driven in large part by high public spending,” it said.
The report said Qatar and Saudi Arabia would be the strongest performers with growth rates upgraded to 5.7 and 4.4 per cent respectively.
It said the improved GCC growth performance is still expected to take place in a relatively benign inflationary environment.
High public spending will generate inflationary pressures in the region, but headline inflation rates should remain modest, held down by declining inflation in trading partner economies, a relatively firm US dollar, and generally weaker commodity price increases, it added.“Still weak real estate markets will also contain pressures in countries like the UAE, Qatar and Bahrain.”
Turning to finance, it said that with both oil prices and GCC crude production now expected to be higher than in 2011, public finances should remain healthy despite large spending commitments.
With the exception of Bahrain, GCC states will continue to post large fiscal surpluses while public debt levels will remain low and external savings will be bolstered on the back of sustained large current account surpluses, it said.
“The twin fiscal and current account surpluses for the GCC as a whole are now expected to remain at around 13 and 24 percent of GDP respectively in 2012.”