Official growth rates likely to understate the UAE recovery

The latest report from the UAE Ministry of Economy predicts that GDP growth will range between 2.5 to 3.2 per cent this year, depending on oil prices. But the bounce back from near recession last year would be much higher if figures for last year had not understated the economic downturn.

For most businesses in the UAE the first half of the year has seen quite a strong bounce back. The problem for the official statisticians is that by not fully acknowledging the extent of the downturn in 2009, a strong recovery actually appears rather weak.

Growth actually higher

So for once the government is probably now understating reality. Growth in the UAE this year should be more like the bounce back in Asia than the near recession of Europe, providing that the world does not go into a double dip recession that would depress oil prices again.

That said the construction and real estate crash in Dubai in 2009, and there was also a big slowdown in Abu Dhabi too, is reflected in a reduced contribution to the UAE economy by these sectors in the latest official data: down to a total of 18.9 per cent in 2009 compared with 30 per cent plus in the boom years.

It is very hard to get an accurate picture of the UAE economy. Goldman Sachs estimates that the GDP of Dubai contracted from $80 to $50 billion in 2009, not an unreasonable estimate given the sudden stop to construction and real estate in late 2008 that had become the biggest source of GDP.

But there is nothing remotely close to that in the official data. For that matter you can also consider total oil revenues for 2009. Both production and prices fell sharply in the global financial crisis and oil exports fell to $70 billion as per the new data.

Non-oil growth

Somehow we are asked to believe that non-oil GDP compensated for this fall and grew in the worst year for global trade in decades. It is certainly possible that the UAE was less affected than some countries but surely not to the extent that it not only felt no impact but actually grew trade in this environment!

Is the economic outlook for the UAE therefore to be another downturn that officially does not happen? Be that as it may those compiling the figures might care to reflect on the fact that this makes reporting any later recovery difficult as the base for the recovery comparison will be too high. You cannot have your cake today and eat it tomorrow as well.

Transparency actually works in showing business economic reality rather than confusing business into making errors through misinformation. And ultimately it is self defeating in not being actually able to correctly indicate an economic improvement when it happens.