Business: 2010 set to be turning point for the economy

The year 2009 has been economically tough, to say the least. In the aftermath of the global financial crisis, triggered by Lehman Brothers’ collapse in September 2008, world markets remained volatile and precarious, but finally showed signs of a frail recovery at the end of 2009.

So what do analysts and financial experts expect to be in store for investors in 2010?
Standard & Poor’s, one of the most renowned financial research firms worldwide, said in an article published on December 21 that it expects 2010 to get off to a much tamer start than did 2009. According to the article, titled “Top 10 Expectations For Global Corporate Credit Markets In 2010,” Standard & Poor’s sees 2010 as a turning point, characterised by overall prudence among market participants amid a tepid recovery in mature economies and guarded optimism among emerging markets.

Standard & Poor’s says it expects “incremental improvement in macroeconomic fundamentals, ongoing repair in the financial sector, and a cautious revival in the non-financial sector. “Nevertheless, we expect some potholes on the road to the ‘new normal,’” Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group, said.

“For example, we think there will be bursts of volatility, particularly in the second half of the year as some of the emergency government support provisions approach their expiration date. In fact, we would not be surprised to see a partial retreat from 2009’s strong rally in risky asset values.”

Critical determinant

Given that much of the improvement stemmed from unconventional government policy measures, the private sector’s effectiveness in taking over the reins from government as the primary engine of growth for the world economy remains a critical determinant of 2010’s outlook, the researchers added.

For the Middle East, the International Monetary Fund (IMF) has stated that the regional economies showed signs of recovery from the financial turmoil during the last months of 2009. In its latest World Economic Outlook for 2010, the IMF raised next year’s growth estimate for the region to 4.2 per cent from a July forecast of 3.7 per cent.

“The recent improvement in global financial conditions and rise in commodity prices, however, are helping restore the pace of economic activity,” the IMF said in the report.
The report said gross domestic product growth of Middle East oil-importing countries is projected to rise 4.5 per cent in 2009, more than three times the growth rate of oil exporters.

This is because non-oil producers have benefited from strong public spending in oil-producing countries, providing support for their economies.

The IMF also said oil prices had been pushed higher on perceptions that the worst of the global recession was over. On the other hand, this means a key risk for the Middle East is any sharp fall in oil prices.

The IMF said countries with fiscal room should maintain high public spending levels to spur an economic recovery. However, countries with weaker fiscal positions should cut back unproductive spending and rein in subsidy programs, it added.

In the same report, the IMF has upgraded its outlook for the UAE in particular. The researchers expect the country to record 2.4 per cent growth in 2010, compared with a previous estimate of 1.6 per cent.

Proof of strength

This is more or less in line with predictions of government officials. Minister of Economy, Sultan Bin Saeed Al Mansouri said that the country’s economic growth would go up to three per cent in 2010 from 1.3 per cent this year.

“The national economy has proved its strength by overcoming the different economic challenges that have stormed global countries due to the global economic criticism,” Al Mansouri said in December.

Bill O’Neill, analyst of Merrill Lynch and author of the Merrill Lynch Wealth Management Year Ahead 2010 report, said he believes that the UAE economy is set to rebound with a two per cent growth in 2010.

The economy of Dubai is expected to grow two to three per cent in 2010 after contracting about two percent this year due to slowing real estate and construction sectors, Sami Al Qamzi, head of the economic development department, said mid-December. 2009’s slowdown will be partly offset by a 9.1 per cent growth in the financial sector and a 5.9 per cent expansion in the consumer goods industry, Al Qamzi added.

Furthermore, Dubai’s economy will grow between 4 to 5 per cent in 2011, Al Qamzi added, and the restructuring of $26 billion of debt at Dubai World will have “a positive impact” on the economy.