IMF upgrades 2010 outlook for UAE

Abu Dhabi: Higher oil prices in recent months have pushed the International Monetary Fund (IMF) to upgrade its 2010 economic growth forecasts for Middle Eastern oil exporters, including the UAE, in a report issued on Thursday.

The UAE's economy is expected to shrink by 0.2 per cent this year, compared with an earlier estimate of a 0.6 per cent decline, according to the IMF's World Economic Outlook. The organisation expects the country to record 2.4 per cent growth in 2010, compared with a previous estimate of 1.6 per cent.

For the group of 10 Middle East oil exporters, the IMF projected an average economic growth rate of 1.3 per cent this year and 4.2 per cent in 2010. Last April, the IMF projected growth of 3.7 per cent for the group.

"Forecasting is an extremely imprecise science, so decimal points are relatively immaterial," said Giyas Gökkent, chief economist at the National Bank of Abu Dhabi's (NBAD) Asset Management Group.

"Having said that, the IMF's improved outlook may not be entirely incorrect. On a quarterly basis, there seems to be an improvement in various indicators in equity markets and commodity prices, for example."

For the UAE's economy, NBAD projects a one per cent contraction this year and "small, single-digit growth" for 2010, according to Gökkent. Other regional investment banks such as Cairo-based EFG-Hermes have forecast the UAE's economy to shrink by as much as four per cent this year, while government officials such as Minister of Foreign Trade Shaikha Lubna Al Qasimi have informally predicted growth to reach three per cent.

Crude prices have remained above $50 per barrel since May and above $60 per barrel since mid-July. In December, 2008, prices dipped below $40 per barrel for the first time since the summer of 2004, according to the United States Department of Energy (DOE) figures.

The DOE estimates released in early September show the price of crude is expected to average $69 per barrel for the second half of 2009, just $19 below the average price for the second half of 2008.

"It's not unreasonable to think the price of oil could go higher next year," said Gökkent. "That's good news for this economy. It means more liquidity and a pickup in terms of oil production."

The IMF report also upgraded its 2010 forecasts for advanced nations from zero to 1.3 per cent average growth.