UAE’s 2011 economic growth falls short of expectations

13 March 2012

Increase in UAE oil production offset by weaker growth in non-oil economy, say analysts

The UAE more than doubled its economic growth rate in 2011 as it increased oil production, but weaker growth in non-oil industries saw it miss analyst forecasts.

Economy Minister Sultan bin Saeed al-Mansouri says real gross domestic product (GDP) expanded an estimated 3.3 per cent in 2011, according to national news reports, up from 1.4 per cent growth in 2010.

The National Bank of Abu Dhabi (NBAD) forecast the economy to grow by 4 per cent in 2011.

“We forecast higher figures because there was an increase in oil production in 2011, as the UAE moved to fill the lack [of supply] resulting from the Libyan supply disruption,” says Giyas Gokkent, economist at NBAD. “That suggests non-oil activity was weaker than we had anticipated.”

Oil production in the UAE, largely focused in Abu Dhabi, was estimated to be at about 2.6 million barrels a day (b/d) last year, up from 2.3 million b/d in 2010.

The UAE oil industry was operating at close to capacity in 2011 and is unlikely to fuel stronger economic growth in 2012.

“While the ‘three Ts’ of Dubai – tourism, transportation and travel – were doing well, we think that non-oil activity was still relatively anaemic,” says Gokkent. “Abu Dhabi is spearheading growth in the UAE and that will probably remain the case in the near term.”

NBAD, which forecast the UAE economy to grow by about 3 per cent in 2012, believes that Abu Dhabi’s Economic Vision 2030 diversification strategy will also boost growth.

The effects of the economic sanctions imposed by the US and the EU on Iran – an important trading partner for the UAE – are also likely to affect growth this year.

In a report released in 2011, the Washington-headquartered IMF predicted that existing international sanctions on Iran could impact the UAE’s GDP by between 0.2 per cent and 0.7 per cent annually. Iran accounts for about 12 per cent of non-hydrocarbon exports from the UAE.

At the same time, the UAE has benefitted from the upward pressure on crude prices caused by international trade tensions with Iran.

There was evidence of an upturn in the UAE banking sector at the end of 2011. In December, net assets in the banking sector rose 3.5 per cent year-on-year, while net loans were up 3.8 per cent – the fastest rate since November 2009.

“There has been a modest pick-up in terms of loan activity, but it is still quite weak,” Gokkent adds.

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