Country Report United Arab Emirates April 2009

Outlook for 2009-10

• The outlook for the domestic political scene is stable, and the president, Sheikh Khalifa bin Zayed al-Nahyan, will maintain the UAE's relatively liberal social and economic policies, as well as its pro-Western foreign policy stance.
• The federal public finances are forecast to register deficits in 2009 and 2010 because international oil prices are expected to be much lower over the outlook period than they were in the preceding three years.
• The Economist Intelligence Unit has made a small downward adjustment to its forecast for the UAE economy. Real GDP is now expected to contract by 1.6% in 2009 (1.4% last month), before recovering in 2010 and growing by 4.3%.
• We have increased our estimate of the UAE's total external debt, now taking into account quasi-sovereign debt held by partly state-owned firms in Dubai. Total external debt at end-2008 is estimated at US$127bn.
• The strengthening of the US dollar since mid-2008 has bolstered the fixed-peg exchange-rate regime, and will also help to ease imported inflation.
• The current account will return a much smaller surplus in 2009, as export earnings on both goods and services falls, before partly recovering in 2010.

Monthly review

• The president of the UAE, Sheikh Khalifa bin Zayed al-Nahyan, in March pledged federal support for the UAE's banks and state companies that are suffering from bad loans and debt.
• The power of the diwan (ruling court) of Sheikh Mohammed bin Rashid al-Maktoum has risen under Mohammed al-Shaibani, a key member of Sheikh Mohammed's inner circle, eclipsing other key government offices.
• British owners of property in Dubai, who fear huge losses in the declining property market, have petitioned the UK government for help.
• The UAE's sovereign wealth funds embarked on new international acquisitions in March. Abu Dhabi's Aabar Investments became the largest shareholder in a German carmaker, Daimler, buying a 9.1% stake for US$2.7bn.
• Abu Dhabi's new global medium-term bonds with a total value of US$10bn attained high marks from Standard & Poor's, a ratings agency, in March, just before the issuing of the first two US$1.5bn tranches.
• UAE-wide nominal GDP grew by 27.4% in 2008, to Dh929.4bn (US$253.2bn) from Dh729.7bn in 2007, according to preliminary official data. Stripped of inflation of an estimated 20%, real GDP growth was 7.4% in 2008.
• Dubai's trade figures show that export earnings rose by 57.5% in 2008 compared with 2007, reaching Dh.42.6bn.