UAE: Country Economic Forecast: 20 Feb 2012

Oxford Economics
February 20, 2012
5 Pages - SKU: OFE6824030
Economic activity picked up slightly in January according to the PMI survey, but growth remains weaker than in H1 2011 due mainly to the deteriorating global outlook. Oil production stayed at recent highs in January and could remain at these levels to offset declining Iranian oil exports. GDP growth is forecast to slow to 3.1% in 2012 from the estimated 4.1% in 2011. Growth will be depressed by the projected weakening in world trade and activity, by the return of Libyan oil production, by lower oil prices and by a more conservative approach to government spending in Abu Dhabi. The main downside risks to the forecast are further upheaval in the Eurozone and problems in refinancing Dubai's debt. Consumer prices fell 0.1% in December, but the annual inflation rate turned slightly positive at 0.2% compared with -0.1% in November. A 0.6% rise in food costs was more than offset by falls elsewhere, led by a 0.3% decline in housing and utility costs. Domestic pressures remain weak and there is an ample supply of housing. External factors will also continue to be more favourable. But inflation will edge up a little to 1.4% in 2012 from 0.9% in 2011 due to less favourable base effects, loose monetary policy and rising wages. The current account surplus is forecast to narrow to some 11.3% of GDP in 2012 from an estimated 14.3% of GDP in 2011 due to less favourable oil trends.

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