GCC economies race ahead of the world economy due to the windfall revenues that come from high oil prices.
UAE GDP statistics draw criticism
Confusion over a surprise change to a key growth measure in the UAE this week has prompted calls for improvements to economic data releases, as investor interest in the booming Gulf region intensifies. Countries in the world's biggest oil exporting region have been thrown into the global spotlight as their economies race ahead of the world economy due to high oil prices, giving them windfall revenues to invest in big-ticket acquisitions in the West and Asia.
But consistent economic data - including gross domestic product (GDP), inflation and money supply - has struggled to keep pace, with few countries offering timely, detailed statistics or a calendar of scheduled releases. Heeding these calls, Gulf government bodies are attempting to reform and improve the quality and timeliness of economic indicators as they prepare for a regional monetary union. "These economies are now becoming global economies," said Marios Maratheftis, the head of research at Standard Chartered Bank. "In the area of statistics, the availability of data has the potential to improve substantially. The market would benefit from knowing a calendar of data announcements and regular updates on the economy."
The UAE revised down its 2007 real GDP growth rate estimate to 5.2 per cent, from an earlier 7.6 per cent, the Ministry of Economy said on Wednesday. In an apparent contradiction later that day, the ministry issued a denial through the state news agency, WAM, that it had revised down last year's economic growth estimates, saying it was sticking to a headline growth rate of 7.4 per cent published in a ministry report in March.
Ministry officials declined to comment immediately yesterday about the accuracy of the data, which some economists said appeared to have resulted from a complete revision of the methodology used to calculate national accounts. "The national accounts compilation system suffers from a number of deficiencies, including lack of a comprehensive data collection programme," the International Monetary Fund (IMF) said in a report on the UAE in October.
"The statistical techniques used in compiling GDP by production and expenditure approaches are not sound," it said. Economists rely on regular official economic data to analyse economic trends, but there is a dearth of timely data in the region. Qatar, Bahrain, Kuwait and Oman, for instance, have yet to release constant GDP estimates for last year. The most likely culprits for the decline in real GDP estimates, however, appear to be rising property and construction costs. Both have been rising precipitously.
Construction costs in the GCC increased by about 30 per cent last year, according to the Kuwaiti developer, Al Mazaya Holding. And steel reinforcement bar (rebar), a key component of the concrete framework of buildings, has gone up by about 35 per cent since May, according to mesteel.com. Cement prices have also risen rapidly, although the UAE has capped them at Dh340 per tonne. Housing prices have jumped at an equally alarming rate, bringing impressive gains onto the books of speculators, but dampening real GDP growth as consumers spend more of their money on living expenses. The resale value of homes in Dubai increased by 19 per cent last year, according to one recent estimate. Rents across the UAE surged 17.5 per cent last year, according to government figures.
"If you asked me to bet on it, I would say the revision is probably due to the construction and property sectors, since they have such a prominent role in GDP and are also where inflation is highest," said Fabio Scacciavillani, an economist at the Dubai International Financial Centre. "The preliminary estimate [in March] had been done on a certain price assumption, but when they got the actual numbers, perhaps the assumption turned out to be an underestimate."
In another example, late last month Qatar revised up its current price GDP growth figure for last year to 25 per cent from a 12 per cent estimate released in March. Some regional economists said they had little faith in some Gulf macroeconomic data and were instead looking at microeconomic trends - such as the performance of the banking sector and debt issuances - to judge the state of the economy.
Steps, meanwhile, are being taken to improve economic data in the Gulf region, as economies like the UAE become key regional commercial centres. While Gulf economies surge, inflation is also accelerating on higher property and food prices. The UAE - where inflation hit a more than 20-year high of 11.1 per cent last year - is the only Gulf oil producer that releases inflation data annually, and even its figures usually emerge months after the end of the year.
The ministry is working with the IMF to revise the current index, which it has called "outdated", and begin releasing price trends monthly, beginning next year. "Efforts to upgrade the statistical system have intensified," the IMF said. "The authorities underscored their determination to make major improvements in the UAE statistical systems in the next few years, as highlighted in their strategic plan."
Meanwhile, an Abu Dhabi Statistics Centre is to open this month to compile and release more regular economic and social data on the emirate. * With Reuters