DUBAI: The International Monetary Fund has raised its 2014 economic growth forecast for the United Arab Emirates to 4.5 percent but warned of a potential property bubble if authorities were not careful.
The UAE’s real gross domestic product growth will remain firm and at the same level as now estimated for 2013, driven by ongoing momentum in non-oil activity. Oil-fuelled growth could be limited due to an ample global supply, the IMF said yesterday.
“The real estate sector in particular has seen a steep recovery, with prices in the Dubai residential real estate market having increased rapidly in selected areas,” said Harald Finger, the IMF’s mission chief, following a staff visit.
In October, the Washington-based lender forecast that the world’s No. 3 oil exporter would see inflation-adjusted GDP expand 3.9 percent in 2014 and 4.0 percent in 2013.
Analysts polled by Reuters this month forecast stable 4.3 percent growth in the UAE in 2013-2015.
Growth should be aided by a number of mega projects, although their total cost, pace of execution and financing remain uncertain, and Dubai’s hosting of the Expo 2020 exhibition, the IMF also said. “If not implemented prudently, these projects could exacerbate the risk of a real estate bubble,” Finger said, echoing the Fund’s warnings from last November and June.
“Moreover, these projects may create additional financial risks for Dubai’s government-related entities (GREs) and the banking system in light of the still considerable debt overhang from the 2009 crisis.”
Dubai, whose property market crashed in 2008-2010, and its GREs have an estimated $78bn worth of debt maturing in 2014-2017, which is a large number that needs to be closely watched, Finger later told Reuters in a phone interview.
Dubai and Abu Dhabi are also still discussing whether to repay or roll over $20bn worth of Dubai government bonds subscribed to by the UAE central bank and banks in Abu Dhabi in 2009 under a programme that matures this year. “The authorities indicated to us that discussions are under way to deal with the coming maturities of the Dubai Financial Support Fund that are due this year,” Finger said.
“It’s possible that Dubai will issue (a bond) again this year based on the market situation and rollover needs.” Reuters
