GDP set to grow at 7pc per annum

The UAE's real gross domestic product will grow at an annual average of seven per cent over five years between 2008 and 2012 while inflation is seen to gradually drop and will average five per cent for the same period.

But these medium-term prospects can only be "sustained into the future" if inflation is reduced and UAE monetary and exchange rate policies are addressed in the run-up to GCC monetary union by 2010, said the Dubai Chamber of Commerce and Industry.

The UAE has been undergoing intense pressure to revalue the dirham, currently pegged at 3.67 to the tumbling US dollar, and move to a currency basket to help tame high inflation which, the government insisted, is due to skyrocketing rental fees.

Dubai Chamber also said that UAE's external debts would grow at an annual average rate of 61 per cent of GDP for 2008-12 while its budget balance would fall to 24 per cent. The country's debts, which are mostly foreign liabilities of commercial banks and private institutions, have almost tripled the past two years.

Its external debt doesn't make the UAE vulnerable, however, since the country's external positions is that of a net creditor, or that its foreign assets are much higher than its liabilities. "But it would need to be monitored," the Dubai Chamber said.

Quoting data from the International Monetary Fund, Dubai Chamber said the UAE economy looks rosy for the next five years, as it has been expanding steadily with non-oil GDP growth averaging over 10 per cent since 2003.
"This rapid economic growth is attributed to an outward economic development strategy, favourable business climate and rising oil prices, among others," it said in the 3rd subject of its Economic Bulletin entitled UAE Economy: Medium-Term Outlook.

It added that economic diversification would fuel growth dependent on non-oil sectors such as construction, financial services, manufacturing, transport, tourism and trade services.

"Real domestic demand growth is expected to remain strong, reflecting the rapid population growth, sustained private consumption as well as robust investment in large infrastructure projects," it stressed.
It also said that a restraint in government fiscal spending and the easing of housing shortage would bring the medium-term fall in inflation, which the IMF estimated to have exceeded nine per cent in 2006.
"The danger of such high inflation is the risk of undermining the competitiveness of the economy and therefore jeopardising the long-term growth prospects of the economy," it said.

Dubai Chamber said that investments and savings in the UAE would increase in the medium-term, noting a large number of infrastructure and oil projects being planned or undertaken by the government. It added that both public and private sectors are also carrying out massive projects in real estate, tourism, transportation and manufacturing.

"An important issue for the government is to ensure that overall public investment is consistent with the absorptive capacity of the economy and this necessitates fiscal coordination between the federal and the emirates governments," it stressed.

It said that investment by the private sector would account for 20 per cent of GDP between 2008 and 2012 while the government's investment rate would be three per cent.
It added that private investment rate would exceed savings while government savings would be more than its investment. Source