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The United Arab Emirates economy may grow an average 4 percent in 2010 and 2011 as the government embarks on nuclear power generation and railway projects, Central Bank Governor Sultan Bin Nasser al-Suwaidi said.

 

“The U.A.E economy may expand as much as 3.2 percent this year with crude oil prices at about $85 a barrel, Economy Minister Sultan bin Saeed al-Mansouri said in May. If oil prices are at $75 a barrel, the UAE will grow between 2 percent and 2.5 percent this year, al- Mansouri said.

 

A challenge facing the country is “short-term liquidity management at Islamic banks and other financial institutions,” al-Suwaidi said today, adding that the U.A.E. Central Bank has devised “a reasonable proposal to advance a solution for this issue.”

 

The news from the federal government comes on the heels of news that Dubai real-estate prizes are experiencing a severe drop, adding to the crash of 2009. This comes as up to 40,000 housing units are released onto the real-estate market.

 

June 12, 2010

 

 

Analysis and Forecast: UAE – Decreasing Risk, Dubai - Increasing Risk

 

The news confirm what Political Capital has predicted over a year ago, in that the UAE economy has become firmly two-tier, with growth in Dubai and the Northern Emirates on the one hand, and Abu Dhabi on the other, decoupled.

 

Growth in the UAE is now largely driven by government spending by the UAE government, primarily financed or backed by Abu Dhabi, leading to the growth figures indicated by the UAE government officials.

 

However, in total contrast, Dubai’s economy continues to slide further. With large-scale construction projects still under way in Dubai, more housing units have been released onto the market, further increasing the supply at a time when the demand has dropped sharply due to the population drop. In addition, the population has become more transient and long-term housing contracts have become less common and so demand has dropped further. By the end of 2010, a further 40,000 housing units are expected to be released onto the market, further exacerbating the situation. When those large construction projects are completed, it is expected that this will be accompanied by a further drop in demand as the workers involved on them will leave. Dubai therefore appears to be entering a vicious circle of further consolidation leading to an expected contraction by 2010.

 

In addition, Dubai still faces a mounting debt that has still not been resolved. The above graph shows an estimate of the debt Dubai faces in the coming years.