KUWAIT CITY (AFP) – Economic recovery in the United Arab Emirates is expected to be slower than in other Gulf States due to high debt levels and its struggling real estate market, a Kuwaiti bank said on Wednesday.
Forecasting the UAE to record its first budget deficit in five years, the National Bank of Kuwait (NBK) said the Emirati economy is expected to contract by 4.6 percent this year before rebounding by 3.6 percent in 2010.
“The presence of high debt levels, weak bank lending, lower company profits and struggling real estate markets will continue to weigh on the economy for at least another year,” Kuwait’s largest bank said in a special report.
“After being one of the region’s most vibrant economies over the past five years, the UAE may now be set to endure a period of relatively slow growth compared to some of its GCC (Gulf Cooperation Council) neighbours,” it said.
“Spending growth is likely to be much reduced this year … and combined with a drop in oil revenues, the government could record its first budget deficit in five years,” NBK added.
Dubai, part of the seven-member UAE, has been hard hit by the global economic downturn due to its high exposure to the global credit markets to finance massive construction projects, many of which have now been delayed.
Abu Dhabi, the largest and richest emirate, was also hit by the crisis due to the sharp fall in oil revenues and reported huge losses in its sovereign wealth fund holdings overseas.
Nominal Gross Domestic Product (GDP) will drop to 213 billion dollars this year from 254 billion dollars in 2008, a contraction of 16.4 percent. It is however forecast to grow to 225 billion dollars in 2010, NBK said.
The main engine of the recovery next year will come from the oil sector, which is expected to grow by five percent in real terms in 2010 after shrinking nine percent this year.
Non-oil sector is forecast to contract one percent in real terms this year and to be followed by a moderate growth of 2.5 percent in 2010.
Bank lending is likely to remain weak next year, while oversupply will remain in some parts of the real estate sector, indicating that “property prices are unlikely to bounce back any time soon,” NBK said.
The absence of access to short-term financing will continue to create problems for refinancing operations and could force changes to entire business models at some firms, it said.