UAE economy will take longer to recover than rest of Gulf

UAE Economic Recovery

Thanks to high debt levels and an ailing real estate market, economic recovery in the UAE is likely to take longer than in other Gulf states, a Kuwaiti bank said on Wednesday.

It is fully expected that the Emirati economy will contract by 4.6 percent this year before rebounding 3.6 percent in 2010, according to data released by the National Bank of Kuwait (NBK). "The presence of high debt levels, weak bank lending, lower company profits and struggling real estate markets will continue to weigh on the economy for at least another year," Kuwait's largest bank said in its special report.

The report also highlighted that the kingdom is likely to experience very slow growth compared to some of its fellow GCC nations, after enjoying years of being the region's most vibrant economies.

"Spending growth is likely to be much reduced this year...and combined with a drop in oil revenues, the government could record its first budget deficit in five years," the report added.

The global economic crisis hit the UAE hard, with Dubai's construction industry being hit particularly hard as many large projects have either been delayed or cancelled. Abu Dhabi, the largest and richest emirate, was also hit by the crisis due to the sharp fall in oil revenues and reported huge losses in its sovereign wealth fund holdings overseas.

The report also highlighted how the regions GDP will be affected, falling US$213 billion this year from US$254 in 2008. But this is expected to climb to US$225 by next year, with the main driving force behind recovery being the oil sector, which is expected to grow by five percent in real terms in 2010 after shrinking nine percent this year.

One thing decision makers in the UAE may have to consider is enforcing changes to entire business models to adjust to the absence of short-term financing, which continues to create problems for refinancing operations. Whether they will take the necessary steps remains to be seen.

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