Abu Dhabi: Europe's worsening debt crisis and weakness in the US economy may slow growth in the United Arab Emirates to around 3 per cent next year, top officials said yesterday.

The country's economy contracted 1.6 per cent contraction on the back of global financial turmoil in 2009, its worst since 1988, as oil prices plunged and a local property bubble burst.

Source of concern

"It is a source of concern for everybody in the world so it is a source of concern to us as well because Europe is a very important trade and business partner for the UAE and worsening conditions economic and financial will reflect on everybody," said Sultan Bin Nasser Al Suwaidi, Governor of the UAE Central Bank, told reporters on the sidelines of a statistical conference.

The UAE's growth recovered to 1.4 per cent in 2010 as oil prices rose, but the hydrocarbon-reliant economy continued to grapple with the fallout of a $25 billion (Dh91 billion) debt restructuring in Dubai's flagship company. A Reuters poll had suggested that crude prices above $100 per barrel as well as strong trade flows with Asia and higher government social spending would boost growth to 3.8 per cent both this year and next.

"If we continue this up and down situation in the US and Europe, our [GDP growth] figures should hover around three per cent. That will rely on what will happen with the oil price and what will happen in the political scene in the region and the Middle East," Sultan Bin Saeed Al Mansouri, Minister of Economy, said at the same event.

"If, and that is a very important if, the situation in Europe and in the US is corrected in a way that addresses the crisis in a very good way, my expectation is that the UAE economic growth could reach about 4 per cent," he said.

However, the UAE does not need to introduce any new liquidity or provisioning measures for its banks, the Central Bank's Al Suwaidi said.

"There is no need for that," he said when asked whether new liquidity measures were necessary. "Why do you take action when there is absolutely no need? These are fluctuations and we are cap-able of dealing with fluctuations from our own sources, which are customer deposits, corporate deposits and huge capital and reserves of UAE banks," he said.