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: UAE FreeZones Newsletter - Issue
97 - December 2009 |
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UAE Set for Rebound in 2010: Merrill Lynch
The UAE economy is set to rebound with a 2 per cent growth in 2010 after a 1 per cent contraction this year while the global economy is on track to grow by 4.3 per cent next year after shrinking by almost one per cent in 2009, a leading analyst with Merrill Lynch said.
The gross domestic product, or GDP, of the UAE is forecast to record a stronger growth of 4.5 per cent in 2011 in tandem with the same growth pace set by Saudi Arabia and Kuwait, said Bill O’Neill, the author of the Merrill Lynch Wealth Management Year Ahead 2010, and Portfolio Strategist of Merrill Lynch Wealth Management, Europe, Middle-East and Africa.
“We believe 2010 will be a decisive year in which the sustainability of the global recovery will be put to the test. We expect it to pass that test,” he said.
“While dollar will continue to strengthen further in 2010 against Euro and Sterling, gold prices will stay at $1,100 per ounce for some time before surging to an all time high of $1,500 per ounce in three stages over the next two to three years,” O’Neill said at a presentation of his “Year Ahead? 2010” forecast.
Commodities are expected to benefit from a 2010 return to global economic growth with crude oil expected to trade on average at around $85 a barrel.
A strong resurgence of the global economy is expected in the wake of rise in consumer spending and borrowing as the threat of unemployment wanes and household incomes recover, he said.
He said equities are expected to outperform corporate and government bonds in 2010, as governments look to consumers to replace them as a catalyst for sustained economic growth in the wake of the recession.
“Governments have spent trillions of dollars to revive the economy. Central banks have cut interest rates close to zero. Businesses have restructured, divested, merged and borrowed to position themselves for a recovery,” said O’Neill. “They will hand over the baton to the consumer to drive growth in 2010. By mid-year we should see first signs of whether that handover has been successful.”
China and India are expected to spearhead the global economic recovery with growth of around 10 per cent and 7 per cent respectively, according to the Year Ahead 2010. The Chinese consumer is expected to fuel domestic growth, Mr. O’Neill says.
The United States and the eurozone are forecast to record more modest growth of 3 per cent and 2 percent respectively in 2010. Japan’s economy is also expected to experience growth of 3 percent after suffering an estimated 6 per cent decline in 2009.
“We believe it will be a good year for equities,” said O’Neill. “We expect growth without accompanying inflation risk. Our forecast is that equities will outperform both corporate and government bonds in 2010.”
Equities are expected to benefit from accelerated growth in Asian markets in particular. Stocks with exposure to China, India, Malaysia, Indonesia and Korea are forecast to offer attractive returns in 2010, said. O’Neill. As a result emerging market equities are expected to outperform their counterparts in developed economies.
O’Neill also forecast a hike in interest rate. Central banks are forecast to increase their focus on inflation in 2010, with the UK, India, Korea and Indonesia among countries expected to raise rates in the first half of the year.
With G10 currencies significantly overvalued relative to the currencies of emerging markets – including China, Russia and Brazil – foreign exchange volatility could rise in 2010, said O’Neill. “Nevertheless, the currencies of Brazil, Russia, India and China are expected to appreciate further in 2010.” |
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Courtesy Khaleej Times
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