IMF raises outlook for UAE economy

Brighter fortunes for the UAE economy contrast with lower growth outlooks for Middle East nations afflicted by instability, according to economists polled by The National.

Economists expect more tourists and foreign investment in the UAE.
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Instability across the region has led to an unexpected boost for the UAE economy, with higher oil revenues, more tourists and greater foreign investment forecast.

A brighter outlook for the UAE contrasts with bleaker prospects this year for those countries hit by protests and strife.

Bahrain, Yemen, Egypt, Tunisia and Libya are expected to have sharply lower expansion or even contraction in some cases because of recent turmoil.

The IMF yesterday downgraded its GDP forecasts for this year for Egypt, Tunisia, Algeria, Morocco and Syria in its World Economic Outlook. It raised it outlooks for the UAE, Saudi Arabia, Kuwait and Qatar. It issued no forecasts for Libya, Yemen, Bahrain and Oman.

"The UAE will be a net long-term beneficiary," said Farouk Soussa, the chief Middle East economist of Citibank. "Due to its relative political stability, we believe there is a possibility of a diversion of commercial, investor and tourist activity from less stable parts of the region."

Seven leading economists were polled by The National on the impact of instability in the Middle East and North Africa (Mena).

Libya's economy is tipped for the sharpest downturn. With the country mired in unrest, economists downgraded its GDP outlook from an average of 5 per cent growth before the trouble erupted to a contraction of 15.5 per cent.

This year's forecast for Tunisia, where regional unrest emerged in December, was lowered from average growth of about 4 per cent to a contraction of 0.65 per cent.

Political uncertainty resulting from the toppling of Hosni Mubarak from the Egyptian presidency means the outlook for Egypt's economy is also uncertain. The economy of the Arab world's most populous country is predicted to grow by an average of 2.2 per cent this year, down from the previous forecast of 5.8 per cent.

Bahrain's economy is tipped to grow by less than half of what was forecast before unrest flared there in February. Economists believe its growth will be about 1.6 per cent instead of 4.2 per cent. Yemen's economy is tipped to expand by just 0.1 per cent, far lower than an earlier 3.9 per cent projection.

Despite instances of unrest, the prospects for Saudi Arabia this year are rosier. The world's largest oil exporter has increased crude production to offset reduced output in Libya and recently unveiled a US$129 billion (Dh474bn) stimulus plan. As a result, its GDP is expected to grow 5.8 per cent, faster than the 4.2 per cent forecast earlier.

Oman, shaken by relatively minor unrest, is expected to have little change in its forecast, with growth of 4.1 per cent projected.

Syria, Jordan, Morocco and Algeria are other regional economies to have their GDP forecasts downgraded by the Institute of International Finance (IIF).

The UAE and Qatar were highlighted by some polled economists as most likely to benefit from instability in less settled parts of the region. Foreign direct investment diverted from elsewhere in the region and windfalls from higher hydrocarbon production were reasons cited.

Most economists expect oil prices to rise if further unrest triggers more volatility in crude markets. Prices have already moved about a third higher since mid-February because of concerns that supply may be hit by unrest in the world's main oil-exporting region.

"Unrest has already been priced in, but the spike we are witnessing now is more speculation-driven than anything else," said John Sfakianakis, the chief economist at Banque Saudi Fransi. "The Gulf oil-producing countries are stable and will continue to supply oil as per demand dynamics."

Most of the economists surveyed expected the effects of the unrest to be long-lasting.

* additional reporting by Rory Jones