First with Financial Comment from Arabia

StanChart still negative on UAE for 2009

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Standard Chartered Bank economists today insisted that the UAE will see negative growth of one per cent in 2009, despite protests from some senior local officials who still expect the emirates to enjoy positive growth this year.

‘Oil production is down and that is the main reason for the fall in GDP as well as the real estate crash,’ said regional economist Marios Maratheftis who predicts three per cent GDP growth in Dubai for next year, and five per cent for Abu Dhabi, and average oil prices at $80-a-barrel.

Credit implosion

‘Credit growth of 50 per cent in the middle of last year indicated a liquidity spike that just had to end badly, and it did with the real estate crash,’ he added.

‘This is part of the price for pegging the dirham to the US dollar and getting an inappropriate interest rate into the bargain. We continue to recommend that the UAE should reconsider its peg.’

Standard Chartered Bank is not forecasting a double-dip for the global recession but group chief economist Gerard Lyons said he ‘would not be surprised to see one’.

He thought a correction in global financial markets was likely with the dollar acting again as a safe haven asset class. Dr. Lyons felt that when everybody was negative about the dollar that was probably the moment to be moving into it, but he thought the long-term trend still negative.

‘Central banks are now parking 40 per cent of their reserves in US dollars rather than two-thirds before the crisis, so the trend is clearly away from the dollar although nobody wants to produce a panic’.

Inflation returning

The Gulf States also face a renewed threat from inflation, according to the Standard Chartered Bank economic team. Local economies could revive fast if oil prices pick up again in a global recovery, and hot money floods back into the region.

Clearly if these are difficult times to be in business. They are also tough times for economists. Wildly volatile markets can mess up the best forecasting models, and challenge underlying assumptions.

But these professional economic models are still better than figures plucked out of the air for the benefit of flattering those who then hear what they would like to hear. That is also dangerous, for how do you make the right policy with the wrong data?


Written by Peter Cooper

November 23, 2009 at 5:03 pm

One Response

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  1. You tweaked the story to sound very negative. He predicted 5% growth for the UAE and around 3% for dubai. Overall, he seems bullish on the UAE and mentioned that the “UAE is best positioned to benefit from the pick-up in global activity” and “recovery will be sustainable”

    Ed Note: I attended the press conference and so took my own view on this statement – the forecast seemed pretty conflicted and full of so many scenarios that you could pretty much take your pick to be honest!


    November 24, 2009 at 12:22 pm

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