ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ABU DHABI SECURITIES EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Political Outlook
The outlook for the domestic political scene is
stable, and the president, Sheikh Khalifa bin
Zayed al-Nahyan, will maintain the UAE's relatively
liberal social and economic policies, as well as its
pro-Western foreign policy stance.
The UAE's foreign policy will continue to be based
on its close strategic relations with the West.
These ties have been strengthened by a series of
bilateral agreements with the US, the UK and
France (which has recently opened a military base
in the UAE). The UAE has also signed a major
arms deal with the US. However, it will have to
balance these relationships against its interest in
maintaining good relations with Iran. The risk of a
US military conflict with Iran remains of particular
concern given the UAE's role as the region's
services hub. The UAE's geographical proximity to
Iran, where it has extensive commercial interests,
makes it vulnerable to any conflict there. Dubai in
particular will be anxious to maintain good
relations with the Islamic Republic. The UAE's
withdrawal from the planned Gulf Co-operation
Council (GCC) monetary union may strain
relations with Saudi Arabia. Indeed, in a
forewarning of worsening relations, Saudi Arabia
has revived its objection to the UAE's demarcation
of its common border in some official documents.
Economic performance
It is estimated that the federal public finances will
have registered a small deficit in 2009 on the back
of lower international oil prices and oil production
cuts. The budget balance will move into surplus
again in 2010-11.
Real GDP is expected to have shrunk by 3.5% in
2009–owing to OPEC oil production cuts and a
sharp slowdown in construction activity. Growth
will resume in 2010-11, averaging 4.1%, as
domestic demand picks up.
In 2010 oil prices (dated Brent Blend) will rise to
US$75/barrel, from US$62/b in 2009, as key
economies, such as the US and China, return to
growth. Weakening demand in 2011 in the US will
lead oil prices to fall to US$70/b.
Inflation will have fallen in 2009, to an average of
just 1.5%, on the back of a steep contraction in
demand. It will rise again to 4.8% in 2010 and
7.5% in 2011 owing to the economic recovery and
a rise in imported inflation.
The current-account surplus will widen in 2010-11,
after narrowing sharply in 2009. Rising oil output
and higher non-oil export earnings will boost the
trade surplus, despite an increase in imports as
domestic demand picks up.
Because of the global financial crisis, economic
policy in the first part of the forecast period will
concentrate on restoring confidence in the UAE
economy–particularly the financial and real estate
sectors–with a focus on Dubai, which has suffered
a blow to its reputation following its recent request
that creditors of Dubai World, a quasi-state
company, accept a "standstill" on debt-service
payments. Policy will also focus on pressing
ahead with economic diversification in Abu Dhabi,
including stepping up infrastructure spending (to
the tune of some US$ 1trn according to the
government there) to tackle the strain caused by
the rapid economic expansion of recent years.
The authorities may also introduce new laws to
attempt to stimulate both domestic and foreign
investment in the private sector. However, such
laws have been at the draft stage for some time
and are facing domestic opposition.
Data from the Central Bank of the UAE put real
GDP growth at 7.4% in 2008, with nominal GDP
growth of 23.2%, below our previous estimate of
27.4%. The numbers from the Central Bank
indicate that a slowdown was already under way
in the latter part of 2008, and consequently, there
was less momentum going into 2009. During 2009
the global recession has been hitting the UAE
hard, leading to a sharp reduction in construction
activity, especially in Dubai. This comes in addition
to OPEC-mandated cuts in oil production, which
have been affecting Abu Dhabi's output for most
of the year, weak growth in investment and almost
no expansion in services. However, economic
activity appears to be picking up strongly in the
fourth quarter. Moreover, it is expected that the
UAE to increase its oil production slightly towards
the end of the year.
Inflation has fallen substantially since the
beginning of 2009, with the inflation rate in the first
half of 2009 averaging 3.4%. Inflation is expected
to have averaged just 1.5% in 2009, as economic
activity has been weak and housing supply has
increased.
The UAE dirham's peg to the dollar (at
Dh3.673:US$1) is expected to remain in place in
2010-11. The recovery of the dollar since mid-
2008 has made it even less likely that the
peg–which the UAE has maintained since
independence in 1971–will be broken or the
currency revalued. The Central Bank remains
committed to the existing system.
Export earnings were around US$239bn in 2008.
Lower oil prices, cuts in crude production and a
steep decline in demand in the UAE's export
markets will have caused export earnings to drop
by around 27% in 2009. Import spending will also
have declined in 2009, although by less than
exports, leaving an estimated trade surplus of
US$30bn.*
* The Economic Intelligence Unit, November 2009
Key Information Contacts
Abu Dhabi Chamber of Commerce and Industry www.abudhabichamber.ae
Central Bank of UAE www.centralbank.ae
Abu Dhabi Department of Planning and Economy www.adeconomy.ae
REAL GDP
(AED millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
600
16
14
500
12
400
10
300
8
6
200
4
100
2
0
0
2005
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