Country Forecast United Arab Emirates February 2012 Updater

Country Forecast United Arab Emirates February 2012 Updater

Overview

The outlook for the domestic political environment is broadly stable, although there is a possibility of a transfer of power in Abu Dhabi from the current ruler, Sheikh Khalifa bin Zayed al-Nahyan, to the crown prince, Sheikh Mohammed bin Zayed al-Nahyan, within the forecast period. The external political risk has increased owing to rising tensions between Iran and the West. The UAE could get drawn into a regional conflict should Iran close the Strait of Hormuz and the US retaliate. The northern emirates present a risk, as the wealth gap between Emiratis there and those in Dubai and Abu Dhabi is widening. In general, though, the president of the UAE and ruler of Abu Dhabi, Sheikh Khalifa, enjoys the support of the rulers of the other six emirates and faces no significant threat to his authority. The protests that swept the region in 2011 may increase calls for greater political representation, especially if the government scales back subsidies and/or inflation escalates. In 2009 the global financial crisis shifted the focus of economic policy towards protecting the banking sector and maintaining confidence, particularly in Dubai's real estate sector. The Economist Intelligence Unit forecasts that inflation will remain low at an average of 2.4% in 2012-16. The economy is forecast to grow only moderately in 2012 (of 3.5%) owing to a modest increase in oil production and the euro area crisis.

Key changes from last month

Political outlook

As tensions between Iran and the West escalate, the possibility of a military conflict between Iran and the US has increased. The UAE may find itself drawn into the conflict.

Economic policy outlook

The Abu Dhabi government has completed the review of its development strategy and approved a spending plan for several projects, a reversal of previously announced cutbacks in spending.

Economic forecast

Budgeted expenditure on a federal level is forecast to increase as the Abu Dhabi government has approved a long-awaited spending plan.

Please Note: Due to the Nature of This Report The Toc is Not Available