Uae Economy

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On the back of the surge in oil prices in the past few years and strong regional liquidity, the UAE economy continued to perform well with the economy recording high double digit nominal growth rates since 2003. In 2006, UAE’s gross domestic product (GDP) at nominal prices increased to AED599.2bn, recording a substantial increase of 23.4% over AED485.5bn recorded in 2005. Early estimates from Ministry of Economy (MOE) indicate that the nominal GDP increased by 16.5% to reach AED698.1bn in 2007. In terms of real GDP, early estimates from MOE indicate that the UAE economy grew by 7.4% in 2007 to reach AED420.2bn.

Oil prices continued to surge in 2007 with average oil prices increasing to US$69.1/b from US$63.5/b recorded in 2006. However, there were production cuts from OPEC and heavy maintenance work at the end of the year because of which oil production had come down in 2007. As a result of the above, the total value contribution in absolute terms from this sector is expected to have increased marginally by 9.4% to reach AED244.3bn in 2007 over AED223.4bn recorded in 2006. However, non-oil sector recorded a higher growth and as such the share of crude petroleum and natural gas in GDP came down to 35.0% in 2007 against 37.3% in 2006.

Private and government consumption is expected to have increased by 18.4% and 22.0% respectively in 2007 compared with a growth of 17.9% and 12.4% respectively in 2006. This is mainly due to the increase in income levels, rising population and higher prices with their share in total GDP increasing to 46.7% and 10.6% respectively in 2007 from 45.9% and 10.1% recorded in 2006. What is noteworthy is that the gross capital formation, which is mainly the capital spending by the government and the private sector, increased by an impressive 19.4% which inturn has come on the back of 29.0% growth achieved in 2006 and stood at 20.7% of GDP in 2007 as compared to 20.2% in 2006.

UAE government posted second consecutive budget surplus in 2006 primarily on account of high oil prices throughout 2006. The total revenue for 2006 increased by 39.5% and stood at AED200.7bn as compared to AED143.9bn in 2005.

Preliminary estimates of the balance of payments indicate that both the trade and the current account balance have increased during 2006. The surplus in the trade balance (FOB) increased by 31.8% in 2006 and touched AED207.1bn compared with AED157.2bn in 2005. The increase in the trade balance surplus is mainly attributable to an increase of 21.5% in the value of total exports and re-exports in 2006, when compared with 2005. UAE’s oil exports increased by 27.3% and reached AED257.4bn in 2006, against AED202.3bn in 2005 on the back of high oil prices and increased production. Consequently, the contribution of hydrocarbon exports to total exports further increased to 49.2%. Inflation continued to be a concern for the UAE economic progress and was at all time high of 9.3% in 2006 as recorded by Consumer Price Index. The reported consumer price index (CPI, 1999-2000=100) increased from 121.7 in 2005 to 133.0 in 2006. UAE Economic and Strategic Outlook

Global Research - UAE Global Investment House
2 March 2008
UAE’s currency continues to remain pegged to the US$. The Central Bank (CBUAE) manages money supply growth by aligning interest rates with that in the US, and by issuing certificates of deposit (CDs) to commercial banks in addition to other tools. With the US$ peg and complete capital mobility, nominal interest rates in the domestic market have tracked corresponding US rates closely. Accordingly, interest on 3 months interbank deposits are on a declining trend. The high inflation and low interest rate environment resulted in increasingly negative real interest rates. This coupled with expansionary fiscal stance have added to the upsurge in credit growth and increased development activity leading to high inflationary pressure. The broad money supply, as measured by M2, has exhibited consistent positive...
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