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December 04, 2008


UAE’s GDP to grow 7.7% per annum in next 5 years

It is reported that UAE's real Gross Domestic Product growth is forecast to average 7.7% per annum over the next five years, while its budget surplus will stay at an average 6.3% of the GDP.

The GDP growth forecast by EIU is almost close to the outlook for the GCC given by the IMF. According to its forecast, the GDP of the UAE will grow by 8.2% in 2007, slower than previous year's 9.7%. And Abu Dhabi Commercial Bank has said UAE's economy would expand by over8% in 2007.

A report by Economist Intelligence Unit said that this upbeat forecast for 2008-12 reflects the buoyant public and private investment expenditure. The report added that "While consumer price inflation will fall from its peak 2006 level, primarily because increased housing supply will push down rental costs, the dirham's peg to the dollar will help to contain imported inflation from 2008 as the dollar stabilizes.”


The EIU report said UAE's budget surplus will stay healthy, averaging some 6.3% of GDP on the back of continued high levels of spending in 2008-12 by the government. It added that "Moreover, a large part of the surplus oil revenue from 2004-06 has been placed in overseas funds that can be tapped in times of lower oil related earnings. Monetary policy will continue to be dictated by the UAE dirham's peg to the US dollar. Furthermore, even if the exchange rate regime were to be altered, the dirham would be likely to remain closely linked to the dollar."

The report said UAE's current account would continue to record huge surpluses throughout the forecast period. It said that "Although the current account will be supported by rising income credits in the form of returns from the government's massive overseas investment portfolios, as a proportion of GDP the surplus will narrow to an average of 13.4% in 2010-12. The government will continue to attempt to attract investment in 2008-12 by offering low tax rates, imposing little trade or exchange controls, providing solid infrastructure and projecting a positive attitude to private sector investment.”

Inflation in the UAE, stoked largely by soaring housing costs and a weakening dollar pegged currency, has been predicted to fall to 8% in 2007 from 9.3% 2006 by the International Monetary Fund.