United Arab Emirates GDP– AN OVERVIEW
UAE GDP grew by almost 5% in 2011: IMF posted on 15/03/2012
The UAE economy swelled by 4.9 per cent in 2011 to surpass earlier expectations due to higher oil output and expansion in the non-hydrocarbon sector, according to the IMF.
Real GDP growth is projected to moderate to 2.5 per cent this year but non-hydrocarbon growth will remain strong, said Harald Finger, who led an IMF mission to the UAE during February 28-March 14 to conduct discussions for the Article IV consultation with the country.
The mission met with Minister of State for Financial Affairs Obaid Humaid Al Tayer, Minister of Economy Sultan Bin Saeed Al Mansoori, Central Bank Governor Sultan Bin Nasser Al Suwaidi, other senior government officials, as well as representatives from the business and financial community.
"The economic recovery looks set to continue. Real GDP growth reached an estimated 4.9 percent in 2011, supported by increases in oil production,â€ Finger said, noting that the Washington-based International Monetary Fund had earlier project 3.5 per cent growth for the UAE economy, the second largest in the Arab world.
He said non-hydrocarbon growth also strengthened, to around 2.7 per cent, backed by strong trade, tourism, and manufacturing.
"Real non-oil GDP growth is projected to further strengthen to 3.5 percent in 2012. With limited potential for further increases in oil production in the near term, overall GDP growth is expected to moderate to 2.3 percent," he said.
He expected inflation in the UAE, a major OPEC oil producer, to remain subdued at around 1.5 percent this year.
"The current uncertain global economic and financial environment poses a number of risks to this outlook", he said.
"The weak growth prospects in the advanced economies could lead to a pronounced decline in oil prices if regional geopolitical risks subside. Moreover, a renewed worsening of global financing conditions could make it more difficult to roll over some of the GREs' maturing debt and affect liquidity conditions in the banking system" in this environment, the authorities' plans to gradually consolidate fiscal policy are appropriate."
According to Finger, the large increases in public expenditure that took place in response to the 2009 crisis should now be unwound as they expose the UAE to the risk of falling oil prices.
He said the planned gradual pace of fiscal tightening will strengthen public finances without undermining the economic recovery.
The recovery will also continue to be supported by an accommodative monetary stance under the peg to the US dollar.
"Substantial progress has been made in the debt restructuring of government-related entities (GRE), but several troubled GREs are still in the process of restructuring," he said.
"Moreover, the GREs are still faced with high refinancing needs and continued reliance on foreign funding. While they are increasingly managing their upcoming rollovers proactively, the current uncertain global financial environment still constitutes a key risk."
He said improved transparency and communication would support the market refinancing of GRE debt. "Looking ahead, authorities should continue to improve regulation, oversight and governance to manage the remaining GRE risks."
Turning to banks, he said the sector remains resilient to shocks, thanks to substantial liquidity and capital buffers.
Although the banking system has remained comfortably liquid, a foreign funding shock could generate some foreign currency liquidity tightening in the banking sector, he noted.
"Despite a considerable rise in non-performing loans since 2008, the banking system remains well-capitalised. However, care should be taken to avoid a further increase in banks' loan concentration to the government and GREs," the IMF official said.
"The authorities have made good progress in establishing databases and improving the quality of economic statistics. Nevertheless, more progress is needed to strengthen key statistics, including balance of payments, national accounts, and fiscal accounts
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