JEDDAH: Increase in public spending, improved non-oil sectors and higher crude production will boost the UAE's economy by nearly four percent in 2011, Saudi American Bank Group (Samba) forecast Saturday. It would be higher than the 3.5 percent rate projected by the International Monetary Fund earlier. "While still weak real estate sectors and debt problems in Dubai are providing stiff headwinds, real GDP growth is now projected to rise to four percent this year, moderating to 3.6 percent in 2012," Samba said in a study. Samba said OPEC is acting to stabilize oil markers. Citing independent data, it said the UAE crude production was up almost 10 percent year-on-year in March at just over 2.5 million barrels per day compared with a formal quota of 2.2 million bpd. Production of NGLs is also rising and exceeded 600,000 bpd for the first time in March, an increase of 21 percent year on year, it said. "These volume increases will have a direct and positive impact on real GDP growth, but will also generate additional revenues - mainly for Abu Dhabi, which appears prepared to use them to stimulate growth," the report said. Samba noted that the non-hydrocarbon sector in the UAE's "more diversified" economy accounts for over 75 per cent of GDP in constant prices, and there is mounting evidence that outside of real estate this sector is performing well. Construction and related activities are benefiting from public infrastructure spending from both the government and its related enterprises, with plans by Mubadala to invest over $16 billion this year. Over $8.2 billion in projects has been awarded in the four months to April according to data compiled be Meed, an increase of 32 percent year-on-year, and another $105 billion worth remain in the pipeline, the report said. "Dubai is benefiting from its position as a regional hub and its strong links with Asia which have helped spur a revival in trade, tourism and logistics." The report further said passenger traffic through Dubai airport was up six percent in the first quarter year-on-year, following a 15.3 percent increase for 2010 as a whole. However, regional unrest adversely affected cargo business, which saw a three percent decline over the same period, following robust growth of 17.7 percent in 2010. "A number of other indicators of non-oil activity are positive: hotel occupancy rates have risen to around 85 percent, points of sale transactions - a proxy for consumption - have rebounded, and year-on-year the volume of exports (including re-exports) and imports grew by 26.5 per cent and 39 per cent respectively in January," the study said. A breakdown showed the oil sector is projected to grow by 5.8 percent in 2011 before dipping to nearly 1.5 percent in 2012. The non-hydrocarbon sector is forecast to expand by 3.4 percent this year and pick up by 4.2 percent in 2012. Higher oil production and prices would increase the UAE's current account surplus from around 6.9 percent of GDP in 2010 to 12.2 percent in 2011 and 13.3 percent in 2012. The country's fiscal surplus is also projected to turn from a deficit of 1.4 percent in 2010 to a surplus of around 6.9 percent in 2011 and nearly 6.1 percent in 2012, Samba said. "Abu Dhabi's budget intentions have not been publicly announced, but it appears clear that any thoughts of consolidation have been ditched in the wake of MENA unrest. We thus expect expansionary fiscal policies will prevail, offsetting the small consolidation apparent in Dubai's 2011 budget," the bank report said. "As well as increased investment in infrastructure, spending will also rise on salaries, pensions and subsidies. The current high oil prices, and hence revenues, backed by Abu Dhabi's large external savings, provide plenty of room for spending increases and we expect that the UAE's consolidated fiscal balance will remain healthily in surplus." Inflation was as low as 0.9 percent in 2010 but expected it to climb to nearly 3.5 percent in 2011 and 4.5 percent in 2012. It noted that the weakness in rents has been the main factor containing the overall consumer price index, as elsewhere inflationary pressures are rising. "Food prices in particular are on the increase. However, given the government's recent promise to keep the price of basic consumption items low, we expect that the impact on inflation this year will be mitigated," it said. "Nonetheless, rising inflation in trading partners, some weakness in the US dollar, and higher commodity prices are likely to push up inflation in 2011."
