The UAE economy could experience a contraction in gross domestic product (GDP) next year, mostly due to external factors, but the country is in a much better position in terms of meeting its obligations and driving domestic investments, said Bill O'Neill, Chief Investment Officer for Europe, Middle East and Africa (EMEA) at Merrill Lynch Wealth Management.
Merrill Lynch has projected 2.6 per cent GDP growth for the UAE in 2012 compared to 3.9 per cent growth it projected last year. "All the negative factors affecting the UAE economy are external. The European crisis and the political turmoil in the region could have an impact on the economy and the domestic asset prices. But the country's strong fiscal position and financial muscle of sovereign wealth funds will keep the economy and the financial system adequately liquid," said O'Neill.
Overall the global investment climate will be clouded by the spectre of recession across Europe, slower growth and raging inflation across the emerging economies. A disorderly Eurozone sovereign default and/or withdrawal from the common currency head the major risks. Other potential negatives include continued policy paralysis in Europe, contagion to other regions from Eurozone deleveraging, possible currency wars, the risk of bank runs (a rapid withdrawal of deposits) and over-zealous fiscal austerity.