At a meeting for Gulf Cooperation Council (GCC) central bankers this month in Abu Dhabi, the governor of the UAE’s central bank, Sultan Al Suwaidi, indicated that the government’s previous remedies to the global financial crisis may not be enough to lift the economy into positive growth this year.
Al Suwaidi told local press, “We don’t give [GDP] figures but if there will be any growth it will be very small. It could be slightly negative or slightly positive. It’s not going to be a big jump.”
Not everybody in the government agrees, however. Earlier this month, Sheikha Lubna Al Qasimi, the minister of foreign trade, told local press that the UAE was on course to reach 3% growth by the end of the year. In 2008 the economy grew at a healthy clip of 7.4%.
Nevertheless, even if there are disparities between the two predictions, most economists agree significant positive growth at a federal level is unlikely. Giyas Gokkent, the chief economist at National Bank of Abu Dhabi, told OBG, “Either flat, meaning zero, or potentially small single-digit contraction – that’s the current outlook.”
HSBC presents a more upbeat view, predicting growth of 1.5% in 2009.
Others, though, are more pessimistic. Credit Suisse offers the outlook of a 2.5% drop in the economy, while Egyptian bank EFG-Hermes sees a contraction of 4% on the cards for this year.
Predictions such as these are in contrast to recent years when the UAE enjoyed breakneck economic expansion. However, the last 12 months have seen dramatic shifts in the global economy. Crude oil prices, which peaked in July 2008 at $147, were pushed by the economic crisis to their nadir in December, marking the end of a five-year bull run on oil. With 30% of the UAE’s real GDP earned through hydrocarbons receipts, it has meant less revenue flowing into government coffers.
Although Abu Dhabi is heavily reliant on oil, accounting for 80% of government revenues, the emirate’s huge cash reserves mean it has the financial muscle to continue with its assiduous diversification strategy. In addition to its deep pockets, non-oil activity appears more robust than other parts the country.
“In the case of Abu Dhabi it is fair to say we still have positive onward growth,” Gokkent said.
This argument is supported by financially strong government-backed developers, such as Aldar Properties, which is continuing with large-scale developments like Al Raha Beach.
As if acting as a totem to the emirate’s economic resilience, the skyline of Abu Dhabi is still littered with cranes as luxury developments, such as Marina Square on Al Reem Island, near completion.
“There are also quite a few government-sponsored projects, such as Saadiyat Island, going on. This evidence is supportive of the view that economic activity is probably more rigorous in Abu Dhabi,” according to Gokkent.
Indeed, the cultural epicentre, which will be Saadiyat Island, is an added boost to the economy, as is the raft of infrastructure projects, such the roads and bridges that continue despite the challenging economic situation.
It is for this reason that more construction companies are reportedly refocusing their sights on the emirate for opportunities, as work slows up for them in other parts of the region.
Another positive signal is that consumer appetite may also be on the rise in the capital. Although having witnessed a drop in sales from October 2008 into February this year, Abu Dhabi Motors, the exclusive importer for BMW and Rolls Royce in the emirate, is seeing a huge increase in purchases of late.
“August was a record sales month for us. Our stock has been at its lowest in three years, and some stock is sold out,” Arno Husselmann, the general manager of Abu Dhabi Motors, told OBG.
Although luxury cars sales may not be a fair representation of the whole population, it does show confidence is returning among Abu Dhabi’s well-heeled residents. This, along with the government’s continued spending and stable oil prices, should mean the emirate will be one of the first to rebound as the global economy improves.