High consumption hurts UAE economy

Dubai: A relatively high consumer spending that accounts for almost half of the UAE's gross domestic product (GDP), could have adverse affect in the country's economy, said a latest report issued by the Department of Planning and Economy (DPE) in Abu Dhabi.

The UAE's GDP rose by 122 per cent during the last five years from Dh144 billion in 2002 to Dh320 billion in 2007.

"This means consumer spending has been on the rise at the average annual rate of 18 per cent, a rate that is twice as high compared to the overall economic growth rate of the country during the same period," DPE said.

Semi-official statistics indicate that per capita consumption in the UAE is seven-fold higher compared to the average spending in the rest of Arab countries.

"The expansion of consumer spending at the expense of savings and investments have, and will continue to have adverse effects on the local economy, particularly in view of the fact that 85 per cent of consumer goods are imported from foreign countries," it said.

"This trend obviously affects the trade balance of the country. More importantly, cash flow from the UAE to international markets would continue unabated," the DPE said.

"Local economic institutions would merely be turned into importing rather exporting institutions for consumer goods and services. This trend has already plunged the UAE to the top of Arab consumer spending," the department added.

Higher spending means lower savings.

"This is alarming," Dr. Amzad Hossain, Assistant Professor of Economics and Finance at Al Ain University said.

"Disposable income is consumption and savings. The more you spend, the less you save, thus lower investment, which is not good for the economy," Hossain said.

Are you an impulsive buyer? Do you think shoppers nowadays are purchasing items according to their needs or are they being influenced by advertisements? Tell us at letter2editor@gulfnews.com or fill in the form below to send your comments.

Earn and Spend policy leads to this situation
Uday
Sharjah,UAE
Posted: June 29, 2008, 14:39

If the UAE wants people to stop spending then stop building shopping malls. How absurd. This society is all about spend, spend, spend. When people do spend, don't complain about it. Isn't that what the UAE wants: people to spend their hard earned cash here - and in turn, keep them here to spend more?
cliff
dubai,uae
Posted: June 29, 2008, 13:18

The commercial are part of marketing. But to go by that is a norm in the present world. The impact it creates is a social divide .I wonder the poor labor who meet his needs with 500dh, how he find his existence in this dynamic part of the middleast, a matter for deep concern, isn?t it?!
dr paulose
Jeddah,KSA
Posted: June 29, 2008, 08:34

It is any alarming situation when the cost of commodities are soaring and reaching the sky. Definitely the expenses have gone up as per the statics and savings on negative side. This will really effect the individual growth through saving and the country's GDP as a whole. Now the time has come for the UAE Govt to think on these lines to build a barrier on expenses to improve the GDP, and come out with some concrete and attractive schemes in savings. It means expenses to be lowered and savings to be promoted and encouraged especially the house rents which are consuming the maximum portion of your salaries.
Satish
Dubai,UAE
Posted: June 29, 2008, 07:53

commercialism... its a double-edged sword
A.F
Montreal,Canada
Posted: June 29, 2008, 06:39