UAE, GCC economy to witness robust growth despite geopolitical challenges

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An aerial view of Dubai. Photo - AP


The UAE will see a year on year GDP growth of 4.5% in 2012 while Kuwait, Oman and Bahrain will record a year on year growth of 4.9%, 4% and 3% in 2012 respectively, according to the latest International Monetary Fund (IMF) data.

The data also suggested that continued upward trajectory of oil prices should strengthen the fiscal and current account balances of GCC countries though on a different scale. Larger fiscal surpluses and greater accumulation of reserves are projected in the UAE, Saudi Arabia, and Kuwait. The IMF projected that the GCC’s fiscal and current account surpluses as a whole will stand at 13.1% and 22.2% of GDP in 2012 respectively.

The study further stated that regional growth will be supported by its ongoing expansionary fiscal policies. Citing Saudi Arabia’s 2012 budget, the Paris-based monetary agency said Riyadh will raise spending by an additional 2.4% this year on top of a 23% increase last year, while Qatar and Kuwait are also expected to increase spending in their 2012-2013 budgets.

Higher allocations to current public spending, notably on public sector wages such as those recently announced in the UAE and Kuwait, will boost domestic demand and non-hydrocarbon growth.

The report noted that non-hydrocarbon growth reached a record high in Saudi Arabia in 2011 increasing by 7.8% year on year, while it is projected to remain at high levels in 2012 with 5.3% year on year increase.

Similar trends are expected to be witnessed in Kuwait and Oman, where fiscal spending has been on the rise. In UAE, the upward trajectory of the non-hydrocarbon sector remains elevated in 2012 as projected to increase by 3.9% year on year from 3.3% in 2011 and 2.1% in 2010.

The IMP report said recent announcements indicate a general increase in consolidated public spending on the developments of UAE economy. The UAE government recently announced an increase in federal wages and pensions, in addition to an AED 10 billion ($2.72 billion) fund, to be used to pay down debts of low income UAE nationals.

The Abu Dhabi Executive Council (ADEC) has also ratified its investment strategy pointing out the need to finalise a number of projects such as the Khalifa Port and the development of the Khalifa Industrial Zone. The UAE government has recently allocated additional AED 16.8bn ($4.6bn) in support of Aldar through property purchases and debt cancellation.

Dubai’s economic outlook

According to Dubai Department of Finance, the emirate’s fiscal efforts resulted in an estimated reduction in spending by 4.4% of total public expenditure in comparison to the 2011 budget, while the infrastructure, transportation and economic development sector took up 41% of total public expenditure.

Last but not least, 29% of the total public expenditure will be allocated to the social development sector including areas of health care, education, housing and culture. Moreover, Dubai’s GDP growth projection in 2012 during Q1 was over 4%, whereas according to available estimates, it grew by more than 3% in 2011 and by about 2.5% in 2010.

The study revealed that the main driver behind the emirates’ economic prosperity is the strategy of generating new business opportunities through diversification. Dubai’s economic prosperity and stability has been focused on trade, tourism and logistics sectors supported by its buoyant infrastructure and its growing reputation as an international business hub.

Together, logistics, trade, tourism, and transportation accounted for almost 60% of Dubai’s GDP in 2011. The aforementioned sectors have recorded substantial growth backed by the significant increase in passenger traffic through Dubai International Airport in 2010 and 2011.

The study highlights the need for policymakers to further enhance diversification in UAE, which will help boost economic growth and prosperity, while enhancing the competitiveness and productivity levels of the economy.

Source: CPI Financial

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