Fallout from euro zone expected to reach Gulf

The UAE's economic growth is expected to slow as it gets hit by the ongoing crisis in Europe.

Fallout from the euro zone's economic crisis is predicted to dampen growth in the UAE and the wider Gulf next year.

While GCC economies remain resilient this year thanks to robust oil revenues and a boost in government spending on infrastructure, growth for the region's GDP is projected to drop from 7.2 per cent this year to 5.3 per cent next year, said Tim Fox, the chief economist at the Dubai bank Emirates NBD.

In the UAE, growth should slip to 4.2 per cent next year, down from 4.6 per cent this year, Mr Fox said yesterday at Insead's Global Business Leaders Conference in Abu Dhabi.

"Global events are starting to factor in sentiment and private sector activity," Mr Fox said. "Demand, globally, is starting to ease back … in relation to the issues and developments in the euro zone. Certainly any slowdown in the developed world will have an impact on demand for oil."

Non-oil sectors such as trade and tourism are particularly vulnerable, he said.

To buffer Abu Dhabi's economy, the Government says it is continuing to move ahead with infrastructure development and a push to diversify away from a heavy reliance on oil revenue.

"We continue to enhance our legislative environment, infrastructure [and] the platform to benefit the private sector to play its role in the overall development of this country," said Fahad Al Raqbani, the director general of the Abu Dhabi Council for Economic Development, on the sidelines of Insead's conference yesterday.

Yet one challenge is that the private sector has experienced unsteady growth in recent months. While private-sector business activity posted only a moderate gain last month, it hit a 15-month low in August, according to HSBC's purchasing managers index. "The non-oil private sector has shown some strain recently," Mr Fox said.

But the Government says it is committed to its long-term plan, which aims to have the non-oil sector contributing 60 per cent of Abu Dhabi's GDP by 2030.

Last week, the UAE Ministry of Finance created a bank to provide Dh10 billion (US$2.72bn) of funding for property and development projects that would benefit the public. On top of that, the Government has committed $1.6bn in infrastructure spending in the Northern Emirates.

"There will be challenges," Mr Al Raqbani said. "There are challenges all the time. The question is what do you do?"