United Arab Emirates Business Forecast Report Q2 2008

Publication Date	February 2008
Publisher	Business Monitor
Product Type	Report
Pages	55
ISBN Number	1744-8859
Product Code	BMI00297

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Inflation Tempers Positive View

Inflation remains our number one concern in the UAE, as it impacts every area of our analysis. Economically, rising input costs are threatening business profitability while inflation is eroding the value of oil receipts. Politically, the falling real value of wages, particularly among unskilled workers, is fuelling discontent and could result in delays for major construction projects. Inflation is also discouraging highly skilled workers from relocating to the UAE, thereby impacting the business environment. In short, while our view on the country is broadly positive, this is one area that demands serious attention.

Despite its location in a potentially highly unstable region, the UAE has succeeded in insulating itself by building up a network of alliances, principally with its GCC partners and the US. Domestically, there are few threats to the ruling regime's position, although labour unrest has been growing of late in response to poor working conditions and falling spending power. So far, the authorities have shown a willingness to compromise, supporting wage increases and better healthcare provisions to some degree. However, where demands for greater citizenship rights are concerned we see no change in the tough official stance. Indeed, the government is likely to crack down on the duration of work permits in order to prevent expatriate groups from developing as a political force.

The spectre of high inflation will continue to hang over the UAE economy in 2008. Although we do forecast a slight easing in inflationary pressure in 2008 to an average of 7.9% year-on-year (y-o-y), down from 9.7% y-o-y in 2007, this is elevated by historic standards and inflationary expectations remain high. We see a currency revaluation as the best option, particularly as the US is expected to cut rates aggressively in 2008. Nevertheless, the overall outlook for the economy is positive. Although inflation may erode private spending power slightly, we forecast continued high investment spending in 2008, as well as a steep rise in public consumption and anticipate an expansion in real GDP of 6.2%.

Our revamped business environment section highlights the quality of the UAE's physical infrastructure, which is one of its major assets and has helped establish it as a regional trade hub. Some bottlenecks have developed recently but the construction of new highways, public transport systems and airports are all positive developments. With a small population of its own, the UAE has worked hard to create an attractive environment for expatriate workers, through economic incentives such as zero personal taxes. The country also has little domestic terrorist activity, and despite its close relationship with the US, has not been the target of any major attacks.

Content

Executive Summary
- Inflation Tempers Positive View
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Government Responds To Labour Demands
- We foresee no easing on citizenship rules and support for the 3+3 suggests a determination to limit the
- organisational capacity of expatriates.
- Regional Political Outlook
- Increased Co-operation To Benefit Regional Stability
- We are encouraged by recent developments in the Middle East between Iran and its neighbours - notably the
- GCC and Egypt - that seem to suggest a shift towards regional co-operation and increasing stability in the region.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Non-Oil Sector To Remain Robust
- Real annual GDP growth will moderate during our forecast period, although we continue to highlight good
- prospects across the financial, construction and tourism sectors and anticipate strong growth in public
- sector spending.
- Exchange Rate Policy
- Pressure Building Against Dollar Peg
- We see a revaluation or move to a basket peg in 2008 as a strong possibility, although the authorities will be
- reluctant to move without reaching a common agreement with their GCC partners.
- Balance Of Payments
- Changing Trade Winds
- The UAE's trade balance will remain in surplus in 2008 but we do expect some changes in the direction of trade,
- due to the new GCC common market, the signing of a free trade agreement with the EU and the growing
- international pressure to cut economic ties
Chapter 3: Special Report
- Looking Beyond 2008
- The Future Of The World, In Three Acts
- US: The Rebalancing Act
- Unwinding The Imbalances
- We believe that a substantial, multi-year shift in the US external accounts is under way. A weak US dollar and
- subdued domestic consumption should lead to a narrowing in the US's structural current account deficit.
- China: What If We're All Wrong?
- Our Core Scenario For China
- We are retaining our positive headline growth projections for China across the forecast period to 2012, with
- our expectations of the continued success of the urbanisation process and export-driven growth model
- underpinning our assumptions.
- Japan: Immigration Key To Long-Term Growth
- Demographic Woes Portend Long-Term Decline
- Immigration remains the only realistic way that Japan can overcome its long-term economic challenges.
Chapter 4: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Outlook
- Operational Risk
Chapter 5: Key Sectors
- Oil & Gas
Executive Summary
- BMI forecasts that the country will account for 3.93% of MEA regional oil demand by 2011, while providing 7.99% of supply.
- Pharmaceuticals & Healthcare
List of Tables
- Table: Cabinet List
- Table: Economic Activity
- Table: Exchange Rate Policy
- Table: Balance Of Payments
- Table: BMI Business And Operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Table: Middle East & Africa, Annual FDI Inflows
- Table: BMI Trade Ratings
- Table: Top Export Destinations (US$mn)
- Table: UAE Oil - Historic Data & Forecasts
- Table: Drug Market Trends
- Table: Health Expenditure Trends