Sunday, March 22, 2009

UAE Economy may shrink in mid-year, based on global crisis: Minister

The UAE Economy may shrink further, during the second half of the year, if the global downturn intensifies, announced the Ministry of Economy, yesterday.

The Minister Sultan bin Saeed Al Mansouri, said "There could be some contraction. But, it depends on what happens in the world economy as a whole, during the second half."

"I would like to be conservative and say that UAE will be affected by the slowdown in the world economy," he added.

Just the last month, the Central Bank Governor, Sultan in Nasser Al Suwaidi, had said that UAE is likely to see "low single-digit" growth in 2009. The GCC region have however, been reluctant to agree that their economies which saw a boom during a six-year rally in crude oil prices, could contract when the demand for petroleum drops. UAE is the fifth-largest exporter of oil and had generated 48 percent of its GDP from crude shipments.

Dubai has seen a major set-back in its property market, which was a strong pillar for the local economy. The emirate, together with federal help, is now trying to support the property companies that have been hit hard by the tumbling prices of residential and commercial properties.

In such a scenario, Al Mansouri has denied any possibilities of closing down the two largest mortgage lenders of Dubai - Amlak Finance and Tamweel, and is considering several other options, including merger of the two mortgage providers.

The two lenders were under the control of the Federal Government since November, and thereafter new home loans were suspended, due to their mounting debts and cancellation of new projects. The officials had set up a committee last month to decide whether to merge, liquidate or restructure Tamweel and Amlak. The Committee completed its review merger and submitted the report to the Cabinet.

Dubai had also announced a $20bn bond programme last month, with the Federal Government purchasing half of them. The officials in Dubai have mentioned that the proceeds from the sale of the bonds would help the government-affiliated companies, including property firms.

Early this week, the President H.H. Shaikh Khalifa bin Zayed Al Nahyan denied the rumours that the oil-rich Abu Dhabi would bail out its neighboring emirate Dubai, provided, it gained control on few of the major assets of Dubai. He explicitly supported Dubai, and, this instilled investor-confidence and buoyed the stock markets of the nation.

Al Mansouri, however, emphasized that UAE would be less affected by the global recession, than other parts of the world.

However, it is a fact that the oil prices are the key determining factor of the economic health of UAE. The yearly nominal gross domestic product grew by 9.4 percent in 2006, 7.4 percent in 2007 and 6.4 percent in 2008. Oil has been a major contributor to more than 40 percent of the country's GDP in each of these three years.

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