KUWAIT: Economic recovery in the United Arab Emirates is expected to be slower than in other Gulf states due to high debt levels and its struggling real estate market, a Kuwaiti bank said on Wednesday.
Forecasting the UAE to record its first budget deficit in five years, the National Bank of Kuwait (NBK) said the Emirati economy is expected to contract by 4.6 percent this year before rebounding by 3.6 percent in 2010.
“The presence of high debt levels, weak bank lending, lower company profits and struggling real estate markets will continue to weigh on the economy for at least another year,” Kuwait’s largest bank said in a special report.
“After being one of the region’s most vibrant economies over the past five years, the UAE may now be set to endure a period of relatively slow growth compared to some of its GCC (Gulf Cooperation Council) neighbors,” it said.
“Spending growth is likely to be much reduced this year ... and combined with a drop in oil revenues, the government could record its first budget deficit in five years,” NBK added.
Dubai, part of the seven-member UAE, has been hard hit by the global economic downturn due to its high exposure to the global credit markets to finance massive construction projects, many of which have now been delayed.
Abu Dhabi, the largest and richest emirate, was also hit by the crisis due to the sharp fall in oil revenues and reported huge losses in its sovereign wealth fund holdings overseas.