Lower oil production will ally with slowing construction activity to try and depress the UAE economy in 2009, but the economy is expected to rebound by nearly four per cent in 2010, the Economist Intelligence Unit (EIU) said yesterday.

In a statement sent to Emirates Business, the London-based information unit said it had cut its earlier forecasts about the contraction in the UAE's gross domestic product (GDP) this year from four to 3.5 per cent following an improvement in oil prices and expected rise in the country's crude output.

"The numbers from the UAE Central Bank indicate that a slowdown was already underway in the latter part of 2008, and consequently, there was less momentum going into 2009. During 2009, the global recession has been hitting the UAE hard, leading to a sharp reduction in construction activity," said David Butter, EIU's Middle East Editor.

"This comes in addition to Opec-mandated cuts in oil production – which have been affecting Abu Dhabi's output for most of the year – weak growth in investment and almost no expansion in services."

Citing projections by EIU, an affiliate of the Economist Group, Butter said economic activity appears to be picking up strongly in the fourth quarter after a large increase in crude prices and gradual global recovery.

"Moreover, EIU expects the UAE to increase its oil production slightly towards the end of the year, which is why we have revised our estimate for 2009 to a contraction of 3.5 per cent from four last month," said the report.

"A gradual increase in oil output, the coming on stream of several large projects in the country and a return of investor confidence, are expected to lead to a growth of four per cent in 2010, helped then by positive base effects."

According to the EIU statement, the UAE economy is projected to pick up pace in 2011 as consumer and investor confidence returns on the back of more robust world economic growth and as banks resume lending.

It said the GDP estimate for 2009 could improve if export growth turns out better than EIU currently expects, or if tourism rises strongly in the fourth quarter.

"The bias to our forecast remains on the downside, especially for 2011, owing to the possibility of a w-shaped global recovery, with a new downturn in late 2010 or early 2011. Many real estate projects have been cancelled or postponed, and these may not resume if previous growth levels are not attained."

EIU noted that many real estate projects in the country had been cancelled or postponed, especially in the private sector, because of the global financial crisis, adding that they may not resume if previous growth levels are not attained.

"Moreover, the population—which grew at an average of seven per cent a year over the past decade—is forecast to decline in 2009, as expatriate jobs are cut in the construction, real estate, tourism and financial services sectors, and to rise only gradually thereafter. This will affect private consumption in both the short and the medium term," the report said.

Figures released by the Ministry of Economy showed the UAE's GDP, the second largest in the Arab World after Saudi Arabia, soared to an all-time high of about Dh934.2 billion in current prices in 2008 from Dh758.02 billion in 2007. Real GDP swelled by 7.4 per cent to about Dh535.3bn from Dh498.3bn.

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