By Tom Arnold www.thenational.ae
The IMF is standing by its growth forecast for the UAE despite Dubai World’s recent agreement on debt restructuring.
If the debt agreement has a significant impact on credit growth and private-sector business sentiment, the Washington-based fund might upgrade its forecast in the coming months, said Masood Ahmed, the director of the IMF’s Middle East and Central Asia department. Last month, the IMF doubled its forecast for GDP expansion this year to 1.3 per cent, but warned then that Dubai World’s debt problems could affect economies in the region.
That revision included the view that the Dubai Government-controlled conglomerate was moving towards an orderly and co-operative resolution with creditors, Mr Ahmed said.
“We don’t have immediate plans to alter the forecast,” he said yesterday at the launch of the IMF’s regional economic outlook report in Dubai.
“It is a conservative forecast but how quickly this [Dubai World] agreement is brought to completion and how quickly it has an effect on credit growth along with what happens to oil production during the course of this year will be forces for a revision upwards of the forecast.”
Dubai World last week announced a US$23.5 billion (Dh86.31bn) restructuring deal with its main lenders , helping to address the emirate’s most pressing debt problem. The emirate’s economy had been hit by uncertainty since the conglomerate said last November it was seeking to delay repaying loans, an announcement that shocked global markets.
Analysts expect the resolution to help spur lending towards the end of the year as banks clean up their balance sheets and become more confident about extending credit.
The IMF’s GDP outlook for the UAE is its lowest in the GCC. Its forecast is also lower than some economists.
Khatija Haque, an economist at Shuaa Capital, said yesterday she expected growth of 3.5 per cent this year, driven by stronger oil prices and higher investment spending by Abu Dhabi.
Marios Maratheftis, the regional head of research at Standard Chartered, forecast GDP gains of 3 per cent for the UAE.
Mr Ahmed said Dubai’s economy would contract about 0.5 per cent this year, the second consecutive year of recession. In contrast, Abu Dhabi’s economy would grow 3.7 per cent, driven by strengthening oil prices.
Dubai’s construction sector may see a bigger contraction this year than last due to the completion of large infrastructure projects such as the Dubai Metro, he said.
Economic activity in the emirate would be led by sectors such as trade and logistics, which were experiencing a V-shaped recovery.
Tourism represented about 40 per cent of Dubai’s GDP given its impact on the related sectors of retail and transport, said Nasser Saidi, the chief economist at the Dubai International Financial Centre.
The openness of economies such as those of Dubai, Singapore and Hong Kong meant that while they had been particularly hard hit by the global economic problems, they were likely to be among the first to benefit from rising global trade and output.
The IMF said the UAE’s growth this year also depended on prices and production of oil. Although prices have fallen in recent weeks to about $70 a barrel, they are still more than twice the levels than during the bottom of the global financial crisis.