Due to fears that Dubai World's debt problems could bewilder the flow of much needed credit and shake already fragile investor confidence, economists are taking back their estimates for economic growth in the United Arab Emirates.
The 2010 gross domestic product forecast for the Middle East's second-largest economy has been lowered by HSBC Middle East Ltd. to 2% from 4.1%. On the other hand Standard Chartered Bank has lowered its growth estimate to 3% from 4.5%.
Marios Maratheftis, an economist at Standard Chartered Bank, "Our view is that the events at Dubai World will have an impact on the U. A. E.'s growth as they influence confidence and will lead to both lower economic sentiment and credit growth for 2010. Without the Dubai World events, growth could have been at 4.5% for 2010."
As of now, the official growth figures are not out for 2010. In December, the U. A. E.'s economy minister Sultan Mansouri, said that the economy of the county might grow by 3.2% this year.
Dubai World, the emirate's flagship conglomerate, last November, announced that it was looking for a six-month standstill on its debts. It is following this announcement only that the latest downturn has come.
The developments will have a notable impact on the country's economy, while Abu-Dhabi stumped up $10 billion to settle some of Dubai's immediate financial obligations-including a $4.1 billion Islamic bond.
Barclays Capital said in a report published Jan. 11, "The forced restructuring of Dubai World, and possibly other entities down the line, would result in output and employment losses, and that uncertainty would negatively affect decisions to consume and invest in Dubai and weigh on government finances."
Barclays Capital revised downwards its 2010 GDP forecast for the U. A. E. to 2.1% from 3.6% amidst the Dubai World debt crisis.
Meanwhile, the rising borrowing cost might adversely affect private sector companies in the U. A. E. since the investors look for both greater transparency and stable business models from companies planning to raise debt.
