Financial storm may be easing

Sara Hamdan

• Last Updated: May 15. 2009 5:52PM UAE / May 15. 2009 1:52PM GMT

The worst of the financial crisis may be over for the Gulf as steadily strengthening oil prices and the return of foreign investors help to restore confidence in battered stock markets.

Analysts said oil prices should continue to edge up, even as demand goes in the other direction.

And Dubai, with its tourism industry showing signs of life, could be set for a rebound.

But one of the country’s top economists has cautioned that the recovery could be slow.

“The eye of the storm is behind us,” said Hassan Heikal, the chief executive of EFG-Hermes, one of the Middle East’s largest investment banks. After cutting jobs and slashing salaries by as much as half at the end of last year, the bank has started to hire again.

His remarks cap a week which saw oil top $60 a barrel while local stocks were given a boost after Morgan Stanley told its clients to buy into Middle East companies.

The cost of living in the region is expected to ease as the rate of inflation slows, while rents in Dubai could fall by a quarter this year, Landmark Properties said this week. Bank lending has started to ease, with banks such as HSBC reducing minimum salary requirements for loans by as much as 50 per cent to Dh10,000.

That follows the injection of Dh120 billion (US$32.69) into the banking system by the UAE authorities that is helping the country emerge from the worst of the financial crisis, according to Basil al Bustany, the chief economic adviser at the Department of Planning and Economy. “It is expected for recovery to be slow, but we are basically on the ladder on the way and I believe the worst is over.”

He added that he believed local markets would still rise and fall as long as global markets remained volatile. “Our GCC markets are no exception, but we are now steady at the bottom and poised for gradual increase,” he said.

UAE markets were particularly hard hit last year as foreign investors sold their holdings. The Dubai Financial Market declined about 70 per cent in the year to May 2009. Regional stock markets gained 15 per cent in April, with Saudi Arabia finishing 24 per cent high at the end of the month.

Dubai could rebound strongly from the economic slump, according to the regional head of BNP Paribas. “The UAE will be contracting in 2009 but will be probably rebounding more than other countries when you have this mild sluggish recovery,” Philippe Aroyo, who heads the bank in the UAE, told Bloomberg this week.

The Emirate’s tourism industry also received an unexpected boost as air passenger traffic grew 6.5 per cent in Dubai last month and 6.1 per cent in March in what could be initial signs of recovery for the regional air travel industry. The city’s airport recorded a throughput of 3.27 million passengers over the month, compared with 3.07m a year ago. The growth rate is a significant improvement to the first quarter, when Dubai airport traffic numbers rose two per cent.

The International Energy Agency yesterday cut its 2009 forecast for world oil demand, projecting consumption will drop the most since 1981. Opec also cut its 2009 oil use outlook yesterday.

Despite the negative outlook, Mr al Bustany said the price of oil would continue upwards. “There will be increasing demand for oil,” he said. “We are in a direction of gradually increasing oil prices with modest fluctuations coming.” But other analysts say that while the initial shock phase of the financial crisis may indeed be over, hurdles to recovery remain, such as restoring confidence in real estate.

“There seems to be minimal progress within the property sector and we haven’t seen the full impacts of that playing out in the economy yet,” said Raj Madha, a research analyst at EFG-Hermes. “Tourism is also badly impacted.”

The return of Amlak and Tamweel to the home loan market could help restore confidence to the sector according to Rasmala Investments. Amlak and Tamweel, the UAE’s two largest home lenders complying with Islamic law, effectively stopped lending last November as the Government moved to restructure the pair amid mounting losses.

shamdan@thenational.ae