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UAE’s GDP Expected To Grow 12.5% This Year

Lorys Charambolous,, Cyprus

20 November 2000

According to a recently-released report from Business Monitor International, the UAE's nominal GDP will grow 12.5% in 2000, with 35% growth in the oil sector and 6% in the non-oil economy.

Prices will tend to rise as a result, and inflation may reach 4%. The trade and current account balances will remain in very comfortable surplus, allowing further transfers to the UAE's already substantial reserves.

"The continued buoyancy in oil markets throughout the third quarter, despite further increases in Opec quotas in June, is almost unprecedented, consequently we have raised our oil price forecast for the Opec basket to an average of $25 in 2000," said the report. It was previously $23.50.

However, the report notes that the seesawing of oil prices from under $10 per barrel in early 1998 to around $35 in early September militates against economic stability and will reinforce the government's desire to diversify into less volatile sources of earnings. Oil accounts for 25-25 per cent of GDP, but much non-oil activity derives from government-led spending and is indirectly linked to revenue flows.

"The oil sector will benefit from both price and volume increases and is forecast to grow by as much as 35 per cent in nominal terms in 2000. The non-oil sector will also benefit from the upturn in oil earnings, albeit with a time lag. Construction and infrastructure, which were badly hit by the 1998-99 recession and an overhang in early 2000, began to show encouraging signs of recovery and private sector confidence began to rebound. We now expect construction and infrastructure each to grow by an average of six per cent in 2000."

BMI forecasts oil prices to peak this year, but nominal GDP growth is expected to ease to 1.1 per cent in 2001 and 2.9 per cent in 2002, slower than the rate of population growth as the oil boom comes to a halt. "We expect oil prices to fall by 20 per cent in 2001 to $20 per barrel and by a further 10 per cent in 2002 to $18 per barrel."


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