Tangible signs of UAE recovery by 'end of the year'

The first tangible signs of economic recovery in the UAE will be witnessed towards the end of the year and the current positive indicators of recovering markets, high oil prices and reports of a possible bottoming out should be met with caution, say economists and industry leaders.
With local markets on the upswing, oil floating in the high $60s and the real estate market witnessing few sales, public perception that the economy may have seen the worst of this global recession is premature, they said.

The full effects of several measures governments and central banks have taken to mitigate the crisis are yet to be seen and felt, meaning uncertain times remain.

"I see the UAE economy bottoming by the end of 2009 with weak recovery thereafter in L-shaped scenario not 'U' or 'V'-shaped," Dr Eckart Woertz, Programme Manager, Economics, at the Gulf Research Centre, told Sole Business.

"In my view, the gross domestic product (GDP) will be between zero and one per cent for 2009.
"The global situation is slightly improving but it's still too early to tell. We might see some hiccups going forward," said Woertz.

"The global economy, which plays a major role in how our economy performs, could face massive inflation due to the ongoing monetary expansion or prolonged recession without it. So either way we are facing tough times. One must understand that this is a serious structural crisis. The economists who feel this is just a cyclical crisis are not on the right track, and all this talk of green shoots is premature," said Woertz.

The bottoming out of the real estate market after widespread distressed selling would be the key catalyst to the economy's upswing, he added.

In a report released this week, HSBC said: "The distressed stock is gradually clearing due to renewed interest as well as some sellers re-pricing, pulling their properties off the market, or putting them up for lease."

HSBC indicated the real estate market in the UAE was beginning to bottom out as prices stabilised, but warned that values could still fall further as more property comes onto the market.

Andrew Chambers, Managing Director of Asteco, however, put aside the notion of the current market reaching its bottom. "We will see the bottom and then recover in the last quarter of this year because the summer is traditionally slow even in a booming market," he said.

"The last quarter is the real deal because by then we should see a lot more mortgages and loans happening. Very few have qualified for mortgages today. It will never get back to last year's level, but the market needs more loans given, and the loan to value ratio still needs to improve," said Chambers, pictured right.

Property firm Asteco has begun recording single digit sales over the past few weeks, which, though pale in comparison to the two dozen weekly sales the firm recorded last year, is a sign of slight movement.

"In the last six weeks we started to see people putting offers on property because they believe the market is at its bottom," said Chambers.

"We have seen more interest now. People are accepting current prices as fair value. But there have only been a few sales. This is obviously better than March this year, when nothing sold. So the handful of sales we are recording now is still a better situation.

Current Asteco data for Dubai shows increasing offers for villas on The Palm Jumeirah, studios and one-bedroom apartments in Discovery Gardens and completed units at Dubai Marina.
The H?SBC report states agreed prices in the UAE rose four per cent month-on-month in April and five per cent in May, but were still 23 per cent down from its peak in September 2008.
Advertised prices in Dubai rose three per cent month-on-month in April and fell one per cent in May, while prices in Abu Dhabi were up two per cent and seven per cent for both months respectively.

Residential real estate prices in Dubai fell an average 41 per cent in the first three months of the year, according to data from property consultants Colliers.

Average prices for apartments in Abu Dhabi have fallen by 10 per cent since the end of the first quarter, while villa prices remained stable, property consultancy Landmark Advisory said earlier this week.

"In the UAE, the real estate situation still has its problems, especially now as summer time is approaching. Since it plays a crucial role in the country's economy, no recovery is possible without real estate healing first," said Dr Woertz.

Oil prices, another crucial factor to economic growth in the region, played favourably this week, peaking above $69 (Dh253) this week, before returning to $66.92 yesterday.
Citing reasons for rising oil prices, Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc said: "This is all about recovery expectations. It looks like manufacturing is recovering in a number of countries, which is feeding into the belief that the worst is behind us. It doesn't hurt that the dollar is at the lowest level of the year."

"We're certainly on our way to $70, if not $75," said Stephen Schork, President of Schork Group. "That seems to be the number everyone is talking about. Given the technical momentum in this market, you cannot bet against it and step in front of this train."

Woertz said: "The current oil prices are helpful for the UAE economy. In my opinion, the prices are right and pretty well calculated because of tight supply scenarios going forward. So even in these recessionary times, it can perform well."

Meanwhile, annual inflation in the UAE slowed to 1.9 per cent in April and prices dropped between January and April led by the housing price slump. Inflation rates have decelerated quickly in the second-largest Arab economy since hitting a 20-year peak of 12.3 per cent in 2008, Ministry of Economy data showed.

"This gives us a good sense that for the year as a whole you could have deflation, and it is being driven by a sharp fall in rents," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.

"Rental increases have been the key driver of inflation in the UAE," said Monica Malik, regional economist at EFG-Hermes, which expects rental prices to fall between 20 and 50 per cent this year compared with a rise of 21 per cent in 2008.

The Ministry's data stayed true to the International Monetary Fund's (IMF) April forecast that the UAE would record one of the lowest inflation rates in the GCC at around two per cent.
IMF figures in its World Economic Outlook showed the combined inflation rate of the Middle East oil exporters would recede to around 8.8 per cent in 2009 from 10.3 per cent in 2008. "For the region as a whole, inflation pressures are projected to subside quickly, owing to lower commodity prices, rents, and economic activity," the IMF said. (With input from agencies)