Editor, MEP

UAE Economy Remains Arab World Showcase

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What’s the story? Growth is returning to that most active of MidEast economies, the UAE, with GDP estimated to have grown 4.9 per cent last year according to the International Monetary Fund (IMF).

4.9% – that’s something struggling economies in Europe would love to have… Too right. Headlines would be all about boom times if the Eurozone, in fact almost any developed economy, could claim that level of growth.

The UAE was recently cited as the most admired country for young Arabs. This will help… With financial security topping the list of concerns across the region, this is going to cement it to the top spot.

What’s driven the growth? According to the IMF high oil prices and increased production, strong growth in Asia, and the UAE’s perceived safe haven status in the context of the regional turmoil.

What tends to get reported very little is the amount of money pouring into the region because of the high oil price. The region’s trade imbalance is significantly more uneven in the GCC than say China which tends to get all the bad press for its export led growth.

I guess one reason is that, in theory, oil prices are more volatile, and what goes up, must come down..? It’s less structural, and less about manipulation of for example the currency? Well the oil price has been defying gravity for some time, and with Europe in a mess, you can see the dollar and oil being, if anything, even more of a safe haven and attracting more investors/speculators. There’s certainly no real signs of any impending deterioration in the price of crude yet.

So what about 2012? The IMF projects oil production to be flat, but most importantly non-oil growth is expected to strengthen further to 3.5 per cent, while inflation is expected to continue to remain depressed due to a continuing decline in housing rents. Basically, good news for UAE residents.

Any worry areas? Debt restructuring of some government-related entities (GRE): With debt estimated at $30 billion (Dh110.19 billion) maturing this year, obtaining credit on the right terms remains a challenge, the IMF said. The Fund also noted the recent federal salary hike and planned increases in development spending in Abu Dhabi, the IMF emphasised the importance of managing the composition of public expenditure carefully.

MidEastPosts.com has already noted its concerns about the country locking in a budget neutral position based on an historically high oil price.

And recommendations? The IMF encourages UAE authorities to continue their efforts to sustain growth and diversify the economy, while maintaining macroeconomic and financial stability. It also commended authorities’ efforts to strengthen the coordination of fiscal policies between the federal and emirate governments.

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