The Dubai economy will grow by about 3 per cent in 2010, after contracting 1 per cent in 2009, according to Marios Maratheftis, head of regional research at the UK’s Standard Chartered.

Maratheftis also estimates that the Abu Dhabi economy shrank by about 0.5 per cent in 2009, and will grow by about 5 per cent in 2010. He adds that the UAE economy overall would grow by about 4 to 5 per cent.

The contraction in GDP in 2009 was attributed to the fall in the oil price and tight liquidity conditions that made it difficult for the private sector to get fresh loans.

Standard Chartered is forecasting that inflation in the UAE will be 6 per cent in 2010. “When the economy starts to show signs of rebounding, the UAE should be prepared to stop inflation reaching double digits,” says Maratheftis.

The peg of the dirham to the US dollar usually means the UAE has to follow the interest rate set by the US Federal Reserve. Because of this, Maratheftis says the UAE should act to prevent inflation becoming a problem again as it has limited tools to fight it once it starts to occur.