Moody’s, in an emailed statement, said it expects UAE gross domestic product to grow by around 3% in 2011 and 2012 thanks to high oil revenues and government spending, but below the 7% yearly average before the financial crisis.
However, it sees Abu Dhabi in a financially stronger position because of its oil wealth, while Dubai continues to wrestle with some large-scale corporate debt restructurings, such as the $ 10bn reorganization of Dubai Holding entities.
“Higher impairments, real estate oversupply and weaker business confidence will dampen the speed of recovery in Dubai,” Moody’s said.
It added that non-performing loans in Dubai next year will peak at between 13% and 15% compared with between 8% and 10% in Abu Dhabi.
Even though UAE banks are sufficiently capitalised to absorb any shocks, their profitability remains under pressure by subdued loan growth and ongoing provisioning.
In addition, the UAE’s dependence on oil revenues and sectors such as trade, services, logistics and tourism make the country’s economy more vulnerable against a backdrop of potentially weak global growth and a possible recession.
Separately, non-oil private sector business activity in the UAE increased in October as new orders and employment accelerated, a sign that economic growth in the Arab country is holding up well in the face of a deteriorating global backdrop, a report from HSBC Holdings showed last week.
HSBC said its purchasing managers index, or PMI, rose to a four month high of 53.4 in October, from a revised 52.3 in September. A reading above the neutral 50 level indicates the economy is expanding.
