Country Report United Arab Emirates November 2009

Outlook for 2010-11

• 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 estimated to have registered a small deficit in 2009 on the back of lower international oil prices and oil production cuts. The budget balance will move into surplus again in 2010-11.
• Real GDP is estimated to have shrunk by 3.5% in 2009—owing to OPEC oil production cuts and a sharp slowdown in construction activity. Growth will resume in 2010-11, averaging 4.8%, as domestic demand picks up.
• In 2010 oil prices (dated Brent Blend) will rise to US$74/barrel, from US$62/b in 2009, as key economies, such as the US and China, return to growth. Weakening demand in 2011 in the US will lead oil prices to fall to US$70/b.
• Inflation will have fallen in 2009, to an average of just 1.5%, on the back of a steep contraction. It will rise again to 4.8% in 2010 and 7.5% in 2011 on the back of the economic recovery and a rise in imported inflation.
• The current-account surplus will widen in 2010-11, after narrowing sharply in 2009. Rising oil output and higher non-oil export earnings will boost the trade surplus, despite an increase in imports as domestic demand picks up.

Monthly review

• The UAE is becoming a major arms importer. A recent US congressional study indicated that the UAE and Saudi Arabia were behind an increase in US arms exports in 2008 to US$37.8bn (68.4% of the market) from US$25.4bn in 2007.
• There have been several reports of Lebanese Shia being deported from the UAE in recent months.
• On October 26th the government approved the federal budget for 2010. Expenditure is projected to increase by a modest 3.4% above the budget for 2009, to Dh43.6bn (US$11.9bn).
• A recent report from Deutsche Bank indicates that Dubai's financing requirement will remain substantial in the medium term, averaging US$12.5bn in external redemptions for 2010-13.
• The UAE received an estimated US$13.7bn in foreign direct investment in 2008, down from US$14.2bn in 2007, but still a substantial amount.
• Despite falling earnings from the hydrocarbons sector, and the onset of economic recession in the fourth quarter of 2008, FDI outflows from the UAE rose to US$15.8bn in 2008, from US$14.6bn in 2007.
• Abu Dhabi has obtained financing for the Shuweihat 2 water and power project.