IMF says UAE to be slowest growing GCC economy

26 May 2010

Dubai economy to face second year of contraction

The UAE will be the slowest growth economy of the GCC in 2010 and 2011, as Dubai suffers a second year of contraction from the impact of its debt crisis and the bursting of the real estate bubble.

According to the latest International Monetary Fund (IMF) forecasts, the UAE is predicted to grow at a rate of 1.3 per cent in 2010, and 3.1 per cent in 2011. Well behind the rest of the GCC, and in contrast to previous years when the UAE was one of the leaders in terms of gross domestic product (GDP) growth.

The figures show that despite a return to growth in Abu Dhabi, which is predicted to grow by 3.7 per cent in 2010, largely on the back of a recovery in oil prices, Dubai continues to weigh on activity in the country.

GCC real GDP growth forecasts
Saudi Arabia0.13.74
Source: IMF

Masood Ahmed, director of the Middle East and Central Asia department at the IMF, says Dubai is expected to shrink “a little over 0.5 per cent” in 2010.

In contrast the rest of the GCC is expected to rebound strongly from the slowdown in 2009. After suffering a slowdown to 0.1 per cent growth in 2009, Saudi Arabia is expected to grow by 3.7 per cent in 2010, driven by government spending measures to support the economy.

Kuwait, which did little in the way of counter-cyclical spending, shrank by 2.7 per cent in 2009, but is expected to grow by 3.1 per cent in 2010.

Ahmed says, “For Dubai’s economy it is important to distinguish between construction activity and trade. Trade shows good signs of a V-shaped recovery. But year-on-year we may see construction slow down even more this year because large projects like the metro have reached completion.”

Although growth will not return to the levels seen previously, Marios Maratheftis, head of research at Standard Chartered in Dubai, says, “It is not necessarily bad that growth rates will be lower in the UAE. It is the quality of the growth that is important.”

The global financial crisis has hit the UAE, and Dubai in particular, hardest of all in the GCC, Dubai is thought to have shrank by around five per cent in 2009. Maratheftis says that following a study of payroll data in Dubai, he estimates that around 15 per cent of the jobs in Dubai were lost, mostly in the first quarter of 2009.

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