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Can the Mideast power global growth if the UAE is in recession?

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The International Monetary Fund now says that the UAE economy contracted by 0.7 per cent in 2009, placing the second-largest Arab economy in recession, and told The National newspaper that ‘in 2010 overall GDP growth will be a bit flat’.

IMF regional director Dr. Masood Ahmed said: ‘Within that, we expect some continued contraction in Dubai and positive growth in Abu Dhabi. In 2010, we believe that the restructuring in the real estate side of Dubai will continue to be a drag on growth’.

Mideast forecast up

And yet at the same time the IMF is raising its forecast for economic growth in the Middle East from 4.2 to 4.5 per cent, one of the highest global growth rates outside China.

This is not the first time that the IMF’s growth projections for the UAE and the Middle East have failed to add up (see this article). Now is it not fair to assume that if the UAE is in trouble for 2010 then so is the rest of the Middle East?

Dr. Ahmed puts the IMF revisions for the UAE down to the Dubai World debt restructuring and the continuing drag of the local real estate crash on the national economy.

Its optimism about 2010 for the wider region is based on an average oil price of $76 a barrel. Forecasting oil prices is of course notoriously difficult but this appears to be a simple projection of current prices forward.

Oil price outlook

There are some big caveats here. What happens if the world goes into a double-dip recession? What happens if the liquidity fueled Chinese growth engine comes off the rails? Then oil prices could take a tumble and the IMF forecast again prove inaccurate.

Is there a better GDP growth estimate on offer? Probably not but it is well worth understanding the inherent problems and uncertainties surrounding such forecasts which may not be very good guides to the future in current circumstances.

To be fair the IMF is duty bound to make its prognostications. But it could at least try to explain how it can see the Middle East as a power house of global growth for 2010 when we are not going to see any growth in the UAE. Both statements are unlikely to be correct.

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Written by Peter Cooper

January 27, 2010 at 10:28 am

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