United Arab Emirates Business Forecast Report Q1 2009

Property Market Raising Macro Concerns

The deterioration of the global economic outlook, tighter liquidity conditions in the Gulf, regulatory developments and rising expectations of a property market downturn are all weighing on our outlook for the UAE real estate sector. All the signs currently suggest that the pace of growth witnessed in the real estate sector over the past two years is unsustainable, with both prices and rents making Abu Dhabi and Dubai unaffordable, even for many service professionals. The potential for a correction poses clear downside risks to our outlook for the UAE economy.

Although the first term of the UAEs first elected parliament has passed without incident, any rapid moves to further widen the countrys democratic stance remain unlikely. There has so far been little indication as to when the next elections to the Federal National Council (FNC), the UAEs advisory assembly, will take place (members were elected in December 2006 for a two-year term) and no suggestion of any extension of the countrys limited suffrage. This is not a problem at present - the governments huge wealth means it can ensure its citizens enjoy a high standard of living. It would surely sustain this spending during a potential oil price fall, even at the risk of entering into fiscal deficit, in order to stave off the risk of political turmoil.

We forecast real economic growth to dip in 2009, as the impact of lower oil prices and rising concern over the sustainability of the UAEs property market boom kick in. That said, we are not forecasting anything approaching a recession and still see growth coming in at 4.6%. From 2010 onwards, our current forecast is for a slight rebound in oil prices and an improvement in US and European growth, which will buoy confidence generally. While the Emirates quest to become a regional financial leader leaves it vulnerable to contagion from global financial conditions, we believe that there are still growth opportunities, in the Islamic banking sector for example.

While fears over the real estate market may be growing, the UAE continues in its attempts to bring its utilities infrastructure up to date with its rapid property growth. Transport is a major avenue of expansion. The newest transport project on the table is Abu Dhabis metro system. According to the Emirates Department of Transport, a study conducted in partnership with the Urban Planning Council will be submitted in December this year, with an announcement on specific routes to follow in January 2009. Construction is due to be completed by 2015. Dubai is already one step ahead in the public transport stakes - construction of its own metro system is already in the advanced stages and the first services are due to start running in 2009.

• Executive Summary
• Property Market Raising Macro Concerns
• Chapter 1: Political Outlook
  • Swot Analysis
  • BMI Political Risk Ratings
  • Domestic Politics
  • Rising Wealth Keeps Democracy Demands Down
  • We do not foresee any radical changes to the UAEs highly restricted version of democracy, at least not in the short to medium term.
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Economic Activity
  • Property, Oil Fears Temper Growth Outlook
  • Although the UAE is forecast to enjoy robust growth over the next five years, the danger of property sector correction looms large over the economy, posing risks to consumer spending, investment and the banking sector.
  • Real Estate
  • Real Estate: Risks Mounting
  • The UAE real estate market is facing strengthening headwinds.
  • Monetary Policy
  • Liquidity Replaces Inflation As Monetary Policy Priority
  • Higher interbank lending rates look set to become a fact of life in the UAE over the short to medium term.
• Chapter 3: 10-Year Forecast
  • The UAE Economy To 2018
  • Long-Term Shift In Economic Dynamics
  • Growth will remain steady over the next 10 years, thanks to a rise in population and an expansion of the non-oil sector.
• Chapter 4: Special Report
  • Why The US Can Remain World Superpower
  • Wealth Is Shifting East...
  • The USs current financial woes will not necessarily undermine its position as a global superpower.
• Chapter 5: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Introduction
  • Latest Developments
  • The UAE has some of the best physical infrastructure in the Gulf region and combined with its relatively open economy and low tariff regime, it has established itself as a major trade hub.
  • Institutions
  • Infrastructure
  • Market Outlook
  • TOP EXPORT DESTINATIONS
  • BMI TRADE RATINGS
  • Operational Risk
• Chapter 6: Key Sectors
  • Petrochemichals
  • Executive Summary
  • In BMIs Middle Eastern Petrochemicals Business Environment Rankings matrix, the UAE is in third place with a score of 59.7 points, 3.2 points behind Qatar and 0.5 points ahead of Kuwait.
  • Autos
  • Executive Summary
  • The UAE scores 58.9 points (out of a theoretical maximum of 100) in the BMI automotive business environment rating this quarter, up 2.6 points over the previous quarter.
• Chapter 7: BMI Global Assumptions
  • Global
  • United States
  • Eurozone
  • Japan
  • China
  • Commodities
• Tables
  • Table: Uae Political Overview
  • Table: Economic Activity
  • Table: Monetary Policy
  • Table: United Arab Emirates Long-Term Macroeconomic Forecasts
  • Table: Geopolitical Power Index
  • Table: Bmi Business And Operational Risk Ratings
  • Table: Bmi Legal Framework Ratings
  • Table: Middle East & Africa Annual Fdi Inflows
  • Table: Uae Petrochemicals Sector - Data And Forecasts
  • Table: Uae Automotive Sector - Historical Data And Forecasts (New Vehicles)
  • Table: Global Assumptions