Country Report United Arab Emirates July 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 a deficit in 2009 on the back of lower international oil prices and oil production cuts. The budget balance will move into surplus again in 2010.
• Real GDP is expected to contract by 1.8% in 2009, largely because of cuts in oil production, before recovering in 2010 and growing by 4.1%.
• Our oil price forecast (for dated Brent Blend) has increased to US$59/barrel in 2009 (from US$47.5/b last month). As the oil market has rallied counter to fundamentals, our 2010 forecast has also increased, to US$65/b.
• 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. Inflation is forecast to average 4.8% in 2009-10, compared with an estimated 20% in 2008.
• 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 disputed Iranian presidential elections have brought a wave of protests among the Iranian residents in Dubai, and concerns are growing over the potential spill-over effects on the economy of prolonged instability in Iran.
• Relations between France and the UAE strengthened in May with the opening of a French military base in Abu Dhabi, "Camp Peace".
• In order to limit future excessive borrowing, in June the federal government approved a draft law to put a limit on public debt. The new legislation will cap the federal government's borrowing limit at 45% of the UAE's GDP.
• A rising number of payment disputes indicate that the funds from Dubai's US$10bn financing facility, obtained in February, are still not reaching private-sector contractors, many of whom have not been paid since mid-2008.
• Dubai World, a ports and property conglomerate, announced in June that it is consolidating its property businesses, Leisurecorp, Dubai Maritime City and Dubai Multi Commodities Centre under the umbrella of Nakheel.
• Forecasts for demographics and economic growth are diverging in the UAE, with the government still expecting 3% GDP growth in 2009, compared with a contraction of 1.7% expected by an Egyptian bank, EFG-Hermes.
• New domestic inflation data indicate that the rate of inflation averaged 5% in the first four months of 2009.

This report covers the following industry codes:
SIC Code: 39
NAICS Code: 31