UAE economic growth seen lower in 2011

The United Arab Emirates is tipped to post lower-than-expected economic growth of 2.9 per cent in 2011, a bank said Thursday, blaming slower investments and global demand.

"We now expect a weaker acceleration in real GDP" in 2011, EFG-Hermes investment bank said in a quarterly report, while maintaining its gross domestic product estimate at 1.7 per cent for this year.

The forecast falls below than the expectations of the International Monetary Fund, which said only last week that the UAE economy will expand by 3.2 per cent in 2011 and 2.4 per cent this year.

UAE central bank governor Sultan bin Nasser al-Suwaidi on Wednesday described as "reasonable" projections that GDP growth would come in at 3 per cent to 4 per cent.

EFG-Hermes said it based its 2011 estimate on "a slower implementation in Abu Dhabi's investment programme" than expected at the beginning of the year. It added growth in global demand for oil and non-oil exports would be slower.

"We had expected (Abu Dhabi's investment environment) to be stronger and provide vital support to domestic demand," it said, adding it has reduced its investment growth outlook.

Meanwhile, the regional investment bank also reduced its oil production estimates for 2011, saying it expected output to remain flat in the first half of 2011, from 2009 and 2010 levels.

"We now only expect to see a smaller output increase" in the second half of 2011, it added.

EFG-Hermes said construction in Dubai "will continue making limited progress" on the back on finishing some ongoing infrastructure projects, like Dubai Metro.

It also noted "some increase in project activity" in the second half of this year linked to the restructuring of the Dubai World group, mainly its giant property arm Nakheel, which has started paying its trade creditors.

But the bank forecast a contraction in Dubai project activity in 2012 "as short-term projects are completed and future projects are cancelled."

Dubai World announced last month it has reached a deal with 99 percent of its creditors to restructure some $24.9 billion in debt.

EFG-Hermes hailed Dubai World's and Nakheel debt restructuring as being "positive in increasing sentiment and reducing systemic risk," but pointed out challenges to the high degree of leverage and difficulties facing real estate sector continue to challenge the economy of the emirate.

The bank estimated the overall debt of the Dubai government and its related enterprises -- including capital markets debt, bonds, Islamic sukuk bonds, syndicated and bilateral loans -- was in the $120-160 billion range, of which government debt amounted to Dh105.47 billion ($28.7 billion) at July 31.

It said that it represented 40.8 per cent of Dubai's 2010 estimated GDP.

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