DUBAI: The United Arab Emirates is tipped to post lower-than-expected economic growth of 2.9 percent in 2011, a bank said Thursday, blaming slower investments and global demand. “We now expect a weaker acceleration in real GDP” in 2011, EFG-Hermes investment bank said in a quarterly report, while maintaining its gross domestic product estimate at 1.7 percent for this year. The forecast falls below than the expectations of the International Monetary Fund, which said only last week that the UAE economy will expand by 3.2 percent in 2011 and 2.4 percent this year. UAE central bank governor Sultan bin Nasser Al-Suwaidi on Wednesday described as “reasonable” projections that GDP growth would come in at 3.0 percent to 4.0 percent. EFG-Hermes said it based its 2011 estimate on “a slower implementation in Abu Dhabi's investment program” than expected at the beginning of the year. It added growth in global demand for oil and non-oil exports would be slower. The emirate of Abu Dhabi, which sits on the bulk of the UAE's oil wealth, was still pressing on with its investments in construction when the sector came to a screeching halt in neighboring Dubai in the second half of 2008, due to the credit crisis. These investments are now expected to be weaker, said EFG-Hermes. “We had expected (Abu Dhabi's investment environment) to be stronger and provide vital support to domestic demand,” it said, adding it has reduced its investment growth outlook. Meanwhile, the regional investment bank also reduced its oil production estimates for 2011, saying it expected output to remain flat in the first half of 2011, from 2009 and 2010 levels. “We now only expect to see a smaller output increase” in the second half of 2011, it added. EFG-Hermes said construction in Dubai “will continue making limited progress” on the back on finishing some ongoing infrastructure projects, like Dubai Metro. It also noted “some increase in project activity” in the second half of this year linked to the restructuring of the debt-laden Dubai World group, mainly its giant property arm Nakheel, which has started paying its trade creditors. But the bank forecast a contraction in Dubai project activity in 2012 “as short-term projects are completed and future projects are cancelled.” Dubai World announced last month it has reached a deal with 99 percent of its creditors to restructure some $24.9 billion in debt, easing some of the pressure on the Dubai government, which rocked global markets in November when it hinted at freezing Dubai World's debt payments. EFG-Hermes hailed Dubai World's and Nakheel debt restructuring as being “positive in increasing sentiment and reducing systemic risk,” but pointed out challenges to the high degree of leverage and difficulties facing real estate sector continue to challenge the economy of the emirate. The bank estimated the overall debt of the Dubai government and its related enterprises - including capital markets debt, bonds, Islamic Sukuk bonds, syndicated and bilateral loans -was in the 120-160 billion dollars range, of which government debt amounted to AED105.47 billion ($28.7 billion) on July 31. It said that it represented 40.8 percent of Dubai's 2010 estimated GDP. Meanwhile, Dubai's Emirates heaped pressure on European carriers in an escalating airlines trade dispute on Tuesday, dismissing its rivals' subsidy claims and voicing plans to expand its fleet to include 120 Airbus A380 superjumbos. – Agence France
