Country Report United Arab Emirates December 2008

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 Economist Intelligence Unit has made a sharp downward revision to its forecast for the federal public finances on the back of lower international oil prices. We now expect the budget to post a deficit in both 2009 and 2010.
• We have made a significant reduction in our forecast for economic growth as the world economy is now in recession. We expect real GDP growth to fall to just 1.5% in 2009, before recovering slightly, to 4.7% in 2010.
• The strengthening of the US dollar since mid-2008 has bolstered the fixed-peg exchange-rate regime, and will help to ease imported inflation, although the low US interest rates are inappropriate for the UAE, discouraging saving.
• Our latest oil price assumptions, together with expected production cuts, have lowered our forecasts for export earnings. We now expect a decline of 26% in export earnings in 2009, from around US$200bn in 2008.
• Falling export earnings on both goods and services will lead the current account to dip into deficit in 2009 before recovering in 2010.

Monthly review

• Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, in late November set up a nine-man task force led by Mohammed Ali Alabbar, the head of Emaar Properties, to help to fight the impact of the global economic crisis.
• Changes to the constitution, made in early December, will forbid any government minister from undertaking commercial activities while in office, but ministers will still be permitted to sit on company boards.
• Terrorist attacks in Mumbai, India's commercial capital, in early December that killed at least 185 people and injured hundreds more, have again raised concerns over the vulnerability of the UAE to a major attack by extremists.
• The Central Bank has created a new taskforce, the Financial Stability Unit, in order to scrutinise the economy. The bank is also overseeing the disbursement of Dh120bn (US$32.67bn) of government funds to the banking sector.
• A speech by Mr Alabbar, also a member of the Dubai Executive Council, to reassure investors did not hinder speculation that the emirate will require a bail-out from Abu Dhabi in order to stave off the risk of a major debt default.
• The merger of the two Dubai-based mortgage lenders, Amlak Finance and Tamweel, was cancelled by the Central Bank, making them the first corporate casualties of the slump in Dubai's real estate sector.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;48;60;15
NAICS Code: 336;517;52;23