Stocks in the UAE hit a three-month high yesterday after a government minister predicted the economy would expand this year, countering widespread expectations of a contraction. The country's economy is on track to achieve 3 per cent growth by the end of the year, with the recovery propelled by the private sector, according to Sheikha Lubna Al Qasimi, the Minister of Foreign Trade.
The forecast, one of the most upbeat to be made by a minister this year, comes after comments from Sultan al Mansouri, the Minister of Economy, who said the country's economy would start to grow again by the fourth quarter of this year. But the assessment that the UAE is close to following other economies out of a severe downturn contrasts sharply with the predictions of the IMF and most local economists, who expect to see the economy contract this year.
The IMF said in May that growth in the Middle East this year would halve, and that the UAE economy would contract 0.6 per cent. That is still better than an expected 1.3 per cent contraction in the global economy. EFG-Hermes offers the bleakest forecast among local banks, predicting a contraction of 4 per cent this year. Credit Suisse sees a 2.5 per cent decline in the economy, while a 1.1 per cent contraction is forecast by National Bank of Abu Dhabi.
HSBC has a more optimistic view, predicting growth of 1.5 per cent this year, while Standard Chartered also expects the economy to end the year in positive territory. "We forecast 0.5 per cent growth this year, more conservative than the government estimate," said Philippe Dauba-Pantanacce, a senior economist at Standard Chartered in Dubai. "Government stimulus packages and a boost in government spending have helped boost the economy this year."
Turmoil in global financial markets and declining oil revenues contributed to dragging the UAE into the world economic crisis at the end of last year, while tumbling property prices this year have dampened hopes of an early rebound. The latest predictions of economic growth may mask substantial differences between emirates, analysts say. "We have to make a difference between Dubai and Abu Dhabi," Mr Dauba-Pantanacce said. "Abu Dhabi is leading the growth and making up for Dubai, where the economy will be more sluggish in 2009."
In an effort to revive the UAE economy, the Government unveiled financial stimulus packages amounting to US$52.6 billion (Dh193.2bn) between July last year and July this year, according to data published by the American research firm Grail Research. This included a $20bn bond programme for Dubai, which has been particularly hard hit by falling property prices. Sheikha Lubna praised the role of local, regional and multinational companies, as well as business councils, in driving trade and economic success in the UAE, in a speech last week in Dubai, according to the WAM news agency.
The country expects to record investment income of about Dh40.6bn this year, surpassing last year's Dh30.6bn. Sheikha Lubna said the country's seventh place in a recent Nielsen survey of global consumer confidence was evidence that confidence was returning. Mr al Mansouri said last month that key indicators showed that economic growth would be back on track by the last quarter of this year and the start of next year.
But some analysts remain sceptical of such a swift economic turnaround. "I think most likely for the year we are looking at just slightly above flat growth on a good note," said Robert McKinnon at Al Mal Capital. "But there's always the buffer for the UAE economy of oil." The countries that have been leading the global exit out of economic contraction are Japan, Germany, France and Australia, which all recorded growth in the second quarter of this year.
Other predictions of growth are also emerging from economies in the Gulf region. Saudi Arabia is expected to see a recovery in the fourth quarter, the Riyadh-based Jadwa Investment said yesterday. "Confidence is rising and growth should pick up modestly over the remainder of the year," it said. firstname.lastname@example.org