Dubai: Strengthening crude oil prices are expected to boost the UAE Government's spending on infrastructure, supporting the growth momentum in the economy in 2010, according a report by the Dubai Chamber of Commerce and Industry.
The study said a combination of dollar depreciation, rising equity prices, improvements in demand on the back of increased market sentiment and risk appetite have lifted crude oil prices significantly since they hit a trough of $34 per barrel last February.
Crude prices are an overriding concern, especially for a resource-abundant country like the UAE, accounting for 37 per cent of GDP in 2008.
"It is clear that the onset of the slowdown in the UAE as well as with the collapse in crude prices witnessed in the first half of this year, both oil and non-oil GDP growth are expected to fall in 2009 relative to previous prosperous years. That said, given the more optimistic outlook since the summer months, both oil and non-oil growth are forecast to rise next year," the report said.
Diversification
The relationship between crude oil prices and GDP growth is strongly correlated.
However, with the government's initiative to diversify the economy away from the hydrocarbons sector, this correlation has weakened somewhat as non-oil GDP takes centre stage.
On the back of the UAE's decision to maintain production levels at about 2.25 million barrels per day, in line with other members of the Organisation of Petroleum Exporting Countries, crude oil revenues have gone up.
The rapid deterioration of the world economy resulted in a dramatic decline in oil demand last year.
However, according to the chamber study, the improving global economic conditions are expected to boost the global demand and price of crude in the months ahead.
"The government revenues will register strong growth next year on the back of higher oil revenues and this in turn will be pumped back into the economy," it said.
