FUJAIRAH, United Arab Emirates (Reuters) – The UAE faces a slowdown in loan growth and real estate activity as it grapples with fallout from the global financial crisis, policymakers in the Gulf state said.
States in the world’s biggest oil-exporting region are expecting the global problems to put the brakes on a regional economic boom supported by six years of high oil prices.
But Gulf economies sitting on surplus oil revenues would continue to post growth as they push ahead with a monetary union plan that has gained momentum during the financial turmoil, UAE Central Bank Governor Sultan Nasser al-Suweidi said.
“The slowdown will be imposed on us…in everything we will see contractions,” he told reporters on the sidelines of a meeting in Fujairah, one of seven emirates in the UAE federation. “But I think we will still be growing in all directions in a very comfortable way.”
His comments echoed those of Mohamed Alabbar, chairman of Dubai-based Emaar Properties EMAR.DU, who said growth in the emirate’s real estate sector could slow to 9 percent from 13 percent due to the global downturn.
“These sectors are growing aggressively and real demand is coming from here,” Alabbar, who is also a member of the Dubai Executive Council, said in comments carried by daily Emirates Business. “Domestic demand for real estate continues to outstrip supply and it will be so for several years.”
The global crisis could bring Gulf Cooperation Council (GCC) members closer together as five of them, including Saudi Arabia, strive to launch a single currency by a 2010 deadline that had been derailed for years, Suweidi said.
The UAE, which pegs its currency to the dollar, opted not to track the latest U.S. Federal Reserve interest rate cut to bring local rates closer to levels in other Gulf countries, he said.
The UAE’s benchmark overnight repurchase rate was left at 1.5 percent after the 50-basis-point U.S. cut on October 29. By contrast, the Kuwaiti benchmark is 4.5 percent and Saudi Arabia’s is 4 percent.
“Coordination and cooperation with GCC countries is very important and (their rates) are way above us. We didn’t want to create a bigger gap,” Suweidi said.
At a Gulf monetary union meeting on Sunday, officials said the crisis had brought the economies closer together, adding an expected decline in inflation would help them meet convergence criteria more quickly, daily al-Sharq reported on Monday.
Speaking of the effect of the financial crisis on monetary union, Suweidi said: “I would say it gives us more enthusiasm and more energy to push forward to achieve monetary union.”
Prior to releasing Gulf notes and coins, Gulf states could set the terms of a numerical currency “at any time,” he said.
Gulf governments have taken a range of emergency steps to unlock credit markets as global financial turmoil raises market speculation banks and investment companies could merge to enable them to face any global recession.
“We are not going to impose any course of action on banks. The banks must see for themselves what is the best course to take,” Bahrain’s central bank governor, Rasheed al-Maraj, told reporters on Monday when asked about potential consolidation.
The UAE central bank had not received any applications for mergers between local banks, Suweidi added.