IMF forecast too low and massively understates the true UAE recovery

Posted on 07 October 2010 with 2 comments from readers

The International Monetary Fund has got its forecasting model for the UAE in a bit of a fix. By understating the true extent of the downturn a year ago, the IMF is unable to show the true extent of the recovery in 2010.

Yesterday the IMF upgraded its forecast for GDP growth to 2.4 per cent rather than the 1.3 per cent it predicted before. The IMF also revized its forecast of the fall in GDP last year from one per cent to 2.5 per cent.

2009 understated

The 2009 figure for GDP is the problem. Last year comparable oil economies shrunk by more like 10 per cent. After all crude oil prices fell and export volumes were down due to the global recession.

Ah but then the argument is that the UAE is more diversified. True but its diversification was into a real estate and construction boom that went bust in the autumn of 2008. Indeed, can anybody point to any sector that did well in 2009? First quarter trade from Dubai fell by more than 25 per cent (see this article).

The IMF for whatever internal reasons decided not to report this economic slump in its figures and to pretend that none of this actually happened. But this is a problem now that things actually are getting better.

New car registrations are up (after an 82 per cent fall in Dubai last year), tourism is up, aviation is booming, and trade has stage a pretty impressive recovery (although only back to 2007 levels). Construction has restarted on some building projects, although more than 500 have now officially been cancelled.

Without the benefit of a macroeconomic computer modelling machine and a team of trained economists, ArabianMoney cannot come up with a definitive alternative economic growth forecast.

Business reality

But with just casual observation it is quite evident that the real picture for GDP in the UAE was a big downturn last year, and a serious recovery in 2010. What the IMF currently says is that GDP hardly changed last year and is up by around the same amount this year, so the recession never happened and neither did the recovery!

This is a serious failure in transparency by the IMF, which ought to know better, and shows that hiding bad statistics does no good in the long run. For then when things are really looking brighter you are hoisted by your own petard.

The real GDP of the UAE may actually be up five to eight per cent this year after a fall closer to 10 per cent last year, and the nominal changes will have been very much bigger. This is the sort of information business and government needs for planning to make the best decisions.

UAE stock market investors look to have been more astute in spotting this recovery to judge from the recent rally in local bourses. How to invest in these markets is considered in some detail in the lastest ArabianMoney newsletter out today (sign-up here).