United Arab Emirates Business Forecast Report Q3 2009

Publication Date	May 2009
Publisher	Business Monitor
Product Type	Report
Pages	66
ISBN Number	1744-8859
Product Code	BMI03879

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Summary

Deepening Recession, But Government Money To The Rescue

We maintain our view that 2009 will be a tough year for the UAE; indeed, we have revised our growth forecasts downwards once again due to the deteriorating state of the world economy, the ongoing decline in UAE property prices, and continued tight lending conditions at local banks.

That said, we are forecasting a fairly robust recovery in 2010, as international trade flows pick up, population growth resumes and the financial sector gets back on its feet. Despite some continued concerns over Dubai's financial health, we highlight the extensive reserves held by Abu Dhabi, which will see the country through the worst of the downturn.

Politically, the UAE remains extremely stable. It does not face the sort of demographic or sectarian pressures that could threaten social harmony in neighbouring states such as Saudi Arabia or Bahrain. That said, the government continues to work hard to keep its populace happy, and will continue to do so despite the fiscal pressures exerted by lower oil prices and the worsening growth outlook. Top of the political agenda is protecting Emirati workers from rising unemployment through the government's 'emiratisation' programme, which seeks to raise the proportion of local citizens in the workplace, and in the private sector in particular.

We are forecasting recession for the UAE in 2009, with the economy expected to contract by 1.7% in real terms. This is mainly due to negative growth in the exports component, due to a reduction in oil output (in response to OPEC quota reductions) and a drop in re-exports, in response to the drying up of international trade flows. Growth in consumer spending will also slow considerably, and there is a risk that it could turn negative. Job losses are likely to spur net emigration from the UAE in 2009, as redundant workers lose their residency rights, meaning a smaller pool of domestic consumers.

Private construction activity has virtually ground to a halt, and real estate developers are slashing their prices to shift empty properties (there are even reports of the prices of properties that have already been sold being negotiated downwards, in order to stave off the risk of repayment defaults).

That said, the government is ploughing ahead with its own construction plans. Abu Dhabi has confirmed a long-term project to build a new capital administration district over the next ten years, while government-controlled utilities such as DEWA have successfully raised financing for ongoing investment plans.

Content

Executive Summary
- Deepening Recession, But Government Money To The Rescue
Chapter 1: Political Outlook
- Swot Analysis
- BMI Political Risk Ratings
- Political Outlook
- Damage Control: Cushioning The Recession's Impact
- While public statements remain bullish, the UAE government appears to accept the severity of the economic challenges
- facing the country.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Downturn Raises Employment Questions
- We are forecasting recession for the UAE in 2009, with lower oil prices and reduced investment spending two of the
- key culprits.
- Monetary Policy
- Government Price Cuts Support Downward Inflation Trend
- Inflationary pressures are easing across the board in the UAE. We are forecasting a year-end inflation rate of 5.0% y-o-y,
- with lower housing costs and food prices to be the main drivers.
- External Debt
- Firms Downgraded But Government Support Remains In Place
- The recent downgrade of two key Dubai government-related entities by ratings agency Moody's supports our long-held
- bearish view on debt in the emirate.
- Balance Of Payments
- Current Account: First Deficit In A Decade
- Lower export receipts will push the current account into deficit in 2009. Oil revenues are just one piece of the puzzle -
- non-hydrocarbons and re-exports are also set to decline.
Chapter 3: 10-Year Forecast
- The UAE Economy To 2018
- Short-term Weakness, But Recovery Should Be Quick
- Growth will recover fairly quickly from 2009's slump, averaging 4.1% between 2009 and 2018. Government spending will
- increase, although rising imports will erode the current account surplus over the forecast period.
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Outlook
- BMI TRADE RATINGS
- Operational Risk
Chapter 6: Key Sectors
- Food & Drink
- Chemicals
Chapter 7: BMI Global Assumptions
- Global Outlook
List of Tables
- Table: UAE Political Overview
- Table: ECONOMIC ACTIVITY
- Table: MONETARY POLICY
- Table: FOREIGN DEBT
- Table: UAE - GOVERNMENT MARKET INTERVENTIONS
- Table: BALANCE OF PAYMENTS
- Table: UNITED ARAB EMIRATES Long -Term Macro economic Forecasts
- Table: LOAN-TO-DEPOSIT RATIOS, Selected States
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Middle East & Africa Annual FDI Inflows
- Table: TOP EXPORT DESTINATIONS
- Table: Mass Grocery Retail Sector Sales Value By Format (US$bn)
- Table: UAE Polymers Capacity ('000 tones annual average)
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL ASSUMPTIONS - LONG-TERM FORECASTS
- Table: Developed States, Real GDP Growth Forecast
- Table: EMERGING MARKETS, REAL GDP GROWTH FORECAST
- Table: Commodities
- Table: GLOBAL & REGIONAL REAL GDP GROWTH