Standard Chartered Bank Report On Uae And Dubai Economy

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Standard Chartered Bank report on uae and dubai economy Jan 22, 2009
Now I would go with this report bad or good because it is an expert analysis and yes it is long so get off my back , if you don't wana read it just scroll down. I'm just posting it for the benefit of other members who is concern about the recession.


Important disclosures can be found in the Disclosures Appendix. Ref: GR-J0109

Analyst
Mary Nicola, +9714 508 3627
Standard Chartered Bank, Dubai
Economist
Mary.Nicola@standardchartered.com
UAE – Braving the storm
08:00 GMT 20 January 2009

• UAE is set to increase fiscal spending in 2009
• We forecast GDP growth at 0.5% in 2009
• Key sectors are expected to slow; fiscal spending to increase
Macro-economy


Following years of impressive growth, the UAE economy is cooling off. Budget and current account surpluses
will allow the government to increase fiscal spending to combat the slowdown. The UAE has announced its
largest budget in history for 2009 – AED 42.2bn (USD 11.5bn), a 21% increase from 2008. The government
expects a balanced budget this year, following surpluses exceeding 10% of GDP from 2004-08.
During 2007 and most of 2008, the economic boom was fueled by ample liquidity and a massive rally in the
housing market. However, the cycle is turning, and these factors can no longer drive the economy. Tight
liquidity is affecting investment, with several projects put on hold, and consumers are becoming cautious. A
global recession, liquidity tightness, and falling oil prices will all take a toll on the UAE economy, in our view.
The effects of the global downturn are already being felt in the UAE, a small, open economy. Global
sentiment and weaker demand have driven down oil prices, making a significant dent in the nation’s overall
exports and revenues. Oil production in the UAE dropped after the most recent OPEC meeting to 2.2mn bpd
from 2.6mn bpd in September 2008. The slide in oil prices will have a significant impact on government
revenues if oil falls to below USD 45 and stays there. Historically, trade has played a significant role in the
UAE economy. Dubai has established itself as the third-largest re-export centre in the world, and re-exports
comprised 44% of its GDP in 2007. But with the world economy in recession, global trade is slowing.
Table 1: Forecasts
GDP Growth (%) Inflation (%) Current account
balance (as % of GDP)
2007 5.2 11.1 22.0
2008 4.8 12.0 29.0
2009 0.5 2.5 10.5
2010 3.5 3.0 16.0
Source: SCB Research
| Country Briefing |
http://research.standardchartered.com
2
Country Briefing | 20 January 2009
Ref: GR-J0109
A lack of funding has constrained several of the country’s key sectors, including construction and real estate.
The construction industry, the fourth-largest contributor to the UAE’s GDP and the third-largest contributor to
Dubai’s GDP (accounting for 9.5% and 12.74%, respectively), slowed in 4Q-2008. According to the Middle
East Economic Digest, the value of contracts awarded in the UAE fell by 40% q/q during the quarter. Many
projects have been put on hold due to tight liquidity and a slowing market, and several contractors have been
forced to lay off workers. The same applies to the real-estate sector. Large property developers have laid off
staff in the past few months and projects have been put on hold. The Real Estate Regulatory Agency
announced that it cancelled the licenses of 28 real-estate development companies in Dubai at the companies’
request because they could not meet their obligations.
Tourism is also likely to suffer. As the UK accounts for the largest number of tourists to the UAE, we can
expect the slowdown in the UK economy to reduce tourist arrivals. Already in Q3-2008, hotel occupancy rates
in Dubai fell to 75.2% from 83.1% in Q3-2007. We expect a further deterioration in Q4-2008 and Q1-2009 as
the global economy falls deeper into recession.
The Dubai Shopping Festival, which normally attracts over 3 mn visitors, will likely see fewer this year. The
Dubai Department of Tourism and Marketing announced that hotels would offer discounts of up to 60% and
are shifting their marketing focus away from European tourists and more toward those from Asia and the Gulf
region, where markets are less affected by the global crisis. Dubai is offering incentives to tourists even
though the winter months are generally the peak tourist season. Whereas 1Q-2008 saw a 90% occupancy
rate, some hotels have reported 10-30% occupancy rates over the past few months.
As for Abu Dhabi, projects have been prioritised due to difficulties financing them commercially. However, the
government has said that plans for the Guggenheim and Louvre museums will proceed, as they are part of
the government’s strategy of transforming Abu Dhabi into the region’s cultural capital.
The biggest risk facing the UAE economy is related to its labour market. With the majority of the labour force
made up of foreign nationals, rising job losses could lead to a reversal in population flows. Foreign nationals
who lose their jobs have to leave the country within a short period of time. According to the Ministry of
Economy, the expatriate population grew by close to 7% in 2007, with expatriates totaling 3.62 mn, against
only 864,000 nationals. How these demographic factors play out will have serious consequences for the
economy.
While there is no official data on the current status of the labour market, there are signs that the UAE is
shedding jobs. While construction and real estate are the worst-affected sectors, job losses now seem to be
spreading to other sectors. Ministry of Labour officials were quoted in the local press saying that visa
cancelations in Dubai have accelerated since October 2008, and are now averaging 1,500 a day and
exceeding 2,000 on some days. The labour market usually lags the business cycle, so the hope is that the job
losses currently evident on the ground are mostly a reflection of what has already happened to the economy
rather than an indication of where it is heading.
Nevertheless, policy needs to focus on avoiding a sharp deterioration of the labour market (as well as
improving liquidity conditions) to prevent a deep recession and to ensure that fiscal stimulus measures
announced by the federal and Dubai governments are effective. Our view is that growth will decelerate to
0.5% in 2009, with the first half being the worst. Positive structural factors (surpluses, diversification, and
infrastructure investment) should allow the UAE to stage a modest recovery in H2, with the economy
performing better in 2010. The silver lining in all of this is that we expect inflation in 2009 to average 2.5%,
down from an estimated 12.0% in 2008.
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Country Briefing | 20 January 2009
Ref: GR-J0109
Exchange rate
The UAE dirham (AED) is pegged to the USD at the rate of 3.67. The leaders of the Gulf countries plan to
adhere to a 2010 deadline for monetary union. Earlier this year, the region’s finance ministers and central
bank governors approved a draft of the monetary institute agreement which is the precursor to the Gulf
Central Bank. While the leaders did not finalise the agreement, they expect to finalise the logistics of
monetary union this year. However, without the proper institutions in place, the 2010 deadline may be difficult
to meet. After much speculation over a potential dropping of the USD peg, it seems that any such plans are
on hold for now. The need for a more flexible exchange rate, however, is as strong as ever.
Monetary policy
Reflecting the peg to the US dollar, local interest rates generally track US interest-rate movements –
monetary policy has in effect been outsourced to the US Federal Reserve. We expect US rates to fall to 0.5%
by the end of 2009. However, liquidity in the UAE remains tight. Interbank rates are stubbornly high and have
decoupled from US rates despite the currency peg. The authorities have responded with a liquidity support
facility, direct injections of liquidity, and, more recently, a USD swap facility. The problem persists, however,
as banks in the UAE overstretched themselves during the good times. Their advance-to-deposit (A/D) ratios
are now in excess of the required 100%, making further lending difficult.
Furthermore, the central bank lacks the necessary tools (such as a fully functioning repo window on a
business-as-usual basis) to manage liquidity effectively. This means that cost of capital in the UAE is high;
high interbank rates reflect this reality. Tight monetary policy is not what the economy needs right now. We
therefore expect further policy responses by the authorities to ensure adequate liquidity, with the policy rate
moving closer to 0.5%. Until this happens, rates will remain tight. We do, however, expect money supply
growth and inflation to subside as a result of the economic slowdown and lower oil prices in 2009.
Fiscal policy
The government has adopted an expansionary fiscal policy. The cabinet approved the largest budget in
history for 2009, a 21% increase over 2008. As part of the UAE’s long-term strategy, the government has
prioritised education, allocating 23% of the federal budget to it. The 2009 budget also includes a 24%
increase in infrastructure spending versus 2008. The government of Abu Dhabi is contributing approximately
40% to the federal budget, while Dubai is contributing 2.8%. Income from ministries contributes about 57% to
the federal budget. Higher infrastructure spending is necessary to counter a likely slowdown of consumption,
investment, and net exports in the current environment, in our view.
The UAE federal budget covers ministerial and federal expenditures in areas such as the military, education,
health care (Abu Dhabi and Dubai have their own health-care systems), and other social services. In addition,
each emirate has its own budget covering state-level expenditures including the police, infrastructure
spending, and social benefits.
Dubai’s government announced a 42% increase in spending for 2009 and is forecasting a budget deficit. We
believe this is the right policy response, as government spending is needed to pick up the slack from the
economic slowdown. Dubai’s is based on an average oil price of USD 45 pb. The spending increases will be
allocated to infrastructure, transportation, and social services. Infrastructure spending will see a 33% increase
over 2008. The largest portion of the overall budget, 45%, will be allocated to road and transportation, Dubai
municipality, and port projects. Dubai, the only emirate so far to issue a state budget for 2009, projects a
fiscal deficit of AED 4.2bn, 1.3% of the emirate’s GDP. The budget projects government revenues of AED
33.5bn (USD 9.1bn) and expenditures of AED 37.7bn (USD 10.3bn). When government-controlled entities
are also included, total revenues reach AED 138bn (USD 37.6bn), 2% higher than 2008, and total
expenditure reaches AED 135bn (USD 36.8bn), 9.2% higher than 2008.
4
Country Briefing | 20 January 2009
Ref: GR-J0109
Disclosures Appendix
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5
Country Briefing | 20 January 2009
Ref: GR-J0109
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Document approved by: Marios Maratheftis, Regional Head of Research, MEPNA

uaekid
Dubai Master of Thread Hijackers
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Posts: 1815

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Jan 23, 2009
Nice post Kid!

Wish we had more useful information such as this here.

:D :D :D

Knight
Dubai Knight
UAE, Dubai Forums Lord of the posts
User avatar
Posts: 5520
Location: Dubai

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Jan 24, 2009
Dubai Knight wrote:Nice post Kid!

Wish we had more useful information such as this here.

:D :D :D

Knight


Behave :lol: :lol: :lol: :lol: :lol:
sage & onion
Dubai Shadow Wolf
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Posts: 16338
Location: Dubai and beyond

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Jan 24, 2009
sage & onion wrote:
Dubai Knight wrote:Nice post Kid!

Wish we had more useful information such as this here.

:D :D :D

Knight


Behave :lol: :lol: :lol: :lol: :lol:


I was being serious!

:shock: :shock: :shock:

Knight
Dubai Knight
UAE, Dubai Forums Lord of the posts
User avatar
Posts: 5520
Location: Dubai

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Jan 25, 2009
Dubai Knight wrote:
sage & onion wrote:
Dubai Knight wrote:Nice post Kid!

Wish we had more useful information such as this here.

:D :D :D

Knight


Behave :lol: :lol: :lol: :lol: :lol:


I was being serious!

:shock: :shock: :shock:

Knight


Please accept my most sincere apologies :D :D :D
sage & onion
Dubai Shadow Wolf
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Jan 25, 2009
Is that the same standard chartered who couldn't open a bank account for two months because the "landmark" field for my US address was not specific enough? The same one that could not cash my rent check beacause they couldn't read the signature (Im still pissed about that one), the same bank who wanted to lend me 200,000 for a car, 150,000 for a personal loan, and 3,000,000 for an apartment (I dont make THAT much by the way).
Yea, real reputable.

Dont you think the same gov't who is going to be bailing this bank out has an interest in keeping these reports positive?
maximusprime
Dubai forums Addict
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Posts: 201
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Jan 25, 2009
Quite bad. I opened a/c there after British Bank because I had not been satisfied a service of last one but nowadays I guess that BB is much better than another colonial banks...
Red Chief
Dubai forums GURU
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Posts: 2256

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Jan 26, 2009
Red Chief wrote:Quite bad. I opened a/c there after British Bank because I had not been satisfied a service of last one but nowadays I guess that BB is much better than another colonial banks...


Which is British Bank? or are you referring to HSBC which used to be BBME?
sage & onion
Dubai Shadow Wolf
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Posts: 16338
Location: Dubai and beyond

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Jan 26, 2009
sage & onion wrote: are you referring to HSBC which used to be BBME?


That's right.
Red Chief
Dubai forums GURU
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Jan 26, 2009
Edit
Red Chief
Dubai forums GURU
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Posts: 2256

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