The United Arab Emirates economy may grow 2.9 percent next year, investment bank EFG-Hermes Holding SAE said today, lowering its forecast from 3.4 percent on fewer expected projects in Abu Dhabi and slower spending in Dubai.
The change comes “on signs of weaker-than-expected project implementations in Abu Dhabi and lower oil production increases,” economists Monica Malik and Mohamed Abu Basha wrote in the quarterly report released today. “Deleveraging, further Dubai Inc. restructuring, falls in real estate prices, and fiscal retrenchment in Dubai should result in a weak domestic demand environment in the medium term.”
The International Monetary Fund said on Oct. 6 that it expected the U.A.E. economy to expand 3.2 percent in 2011, adding that the “health of the corporate sector” remains a challenge. Dubai World, one of the emirate’s three main holding companies, last month said it secured approval from creditors to change the terms on $24.9 billion of debt.
Property prices in Dubai tumbled more than 50 percent after crude oil prices fell to a four-year low of $32.40 a barrel in December 2008, leaving companies unable to raise new funding. The U.A.E. is the world’s fifth biggest oil exporter, according to OPEC’s annual statistical bulletin.
“We believe that the U.A.E.’s investment environment, driven largely by Abu Dhabi, is not as strong as the project data suggest,” the report said. “We still see the U.A.E. as having the weakest domestic demand environment in the GCC region, with structural challenges in Dubai adding to this.”
While Abu Dhabi’s fiscal position remains strong, investment activity in the U.A.E.’s capital is “weak” as the emirate seeks to redefine its economic objectives, the report said.
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