UAE Poised For Two-year Slump
The UAE is poised for two years of slow economic growth as its property sector is hit by the global financial crisis and banks rein in expansion, the central bank governor said.
Growth in gross domestic product (GDP) in the world’s fifth-largest oil exporter would fall to low-single-digit levels in 2009 and 2010, Sultan Bin Nasser Al Suwaidi said, as an economic boom spurred by six years of high oil prices comes to a close.
Still, a slump in the booming property sector would be limited as the country continues to adopt an expansionary fiscal policy, although it will take steps to ring-fence its banking system, Al Suwaidi said.
UAE economic growth will fall by more than half in 2009 to 3.1 per cent from 7.5 per cent this year on lower oil output and slowing consumer spending, EFG-Hermes said yesterday.
Tourism would also slow and force hotels to cut room rates, he warned.
An influx of foreign investors fuelled a vigorous surge in property prices but it is now starting to reverse.
House prices in Dubai are likely to fall almost 28 per cent from a peak earlier this year as a sharp downturn in demand puts the brakes on a six-year property boom, a Reuters survey showed this month.
However a “significant” slowdown in inflation would help sustain a construction sector boom, while trade would continue to grow spurred by local and regional demand, Al Suwaidi said.
“Construction … will not slow down significantly as government departments will find prices attractive enough to undertake major public infrastructure projects.”
The UAE would restrict some practices to ensure it could not be dragged into future crises, he said, adding the central bank was examining bank lending to see if there was any need to provide extra provisions.
While trade-related transfers would continue “without much restriction”, the country would place “some restrictions on some investment flows both outward and inward because risks have been clearly noticed in investments”.
Banks, meanwhile, were in the process of repaying foreign debts, including medium-term notes (MTNs) and interbank deposits, because “local liabilities are more manageable”, Al Suwaidi added, without giving details.
The central bank and fin-ance ministry have together launched Dh120 billion worth of emergency funding since September to help the banking system cope with tight credit markets.
The UAE, which refrained from matching a Federal Reserve interest rate cut in October, would continue to gear monetary policy toward maintaining low interest rates, Al Suwaidi added.
Banks in the UAE will see significant pressure on net earnings next year, with 2009 also likely to be a difficult revenue year due to slowing balance sheet growth and missing sources of income for banks, EFG Hermes said.
Cost control and precautionary provisioning are now “the order of the day,” and fourth quarter of 2008 will likely reflect these trends, the brokerage added.
EFG also expects loan quality to deteriorate throughout next year, and said this will have a significant impact on short-term results.
Personal lending will see some deterioration reasonably early in 2009 and progress through the year, while loan quality for corporates could see a visible deterioration around mid-year, EFG said.
Some banks also face the difficulty of realising losses on their available-for-sale portfolios, the brokerage said.
Source: Gulf News
