Although expectations of long-term growth rates of the UAE and the GCC economies remain positive, these countries need to accelerate the pace of planned structural reforms and strengthen their macro-financial stability, said an economist.

In an exclusive interview with Emirates Business after participating in a panel discussion at the recently concluded IMF meeting in Turkey, former Lebanese Minister of Finance Dr Jihad Azour discussed the future of oil-rich economies of the region.

Dr Azour said: "Unlike other countries of the world, the GCC was somewhat sheltered from the full impact of the global financial crisis and the effects of the economic downturn on the GCCs real economy have been less pronounced than in developed countries.

"As global economies emerge from recession and oil prices pick up – we are already seeing evidence of this – the GCC countries are expected to undergo a smooth recovery. Forecasts from several sources show that growth in the region could exceed five per cent in 2010. Apart from this, the strong prospects for oil prices in 2010 and the projected recovery in oil demand will also enable GCC countries to rebuild their international reserve positions and strengthen their fiscal and external balances.

"The hard-felt inflation of the pre-crisis years that weakened the economic performance is expected to decline significantly in 2009 to single-digit levels, even in the face of expansionary monetary and fiscal policies implemented by various GCC governments. Inflation will remain tamed at a rate of 3.5 per cent in 2010, thus alleviating some of the pressure on government policies and macroeconomic stability. The UAEs financial markets were affected, like other GCC markets, by the global crisis and major indices fell considerably over the past year.

"The government injected fund into banks to restore confidence in the financial system. The crisis impacted planned real estate and power projects, with some large projects cancelled or put on hold. The economy started to recover since the second half of this year, with increase in confidence among investors, and it is expected to grow at a rate of 2.5 per cent in 2010."

According to Dr Azour, the speed of recovery in the GCCs economies depends a lot on the global recovery, the oil market and the local demand. Until the regions financial markets return to normalcy, this recovery will remain subdued. It will also depend on the return of capital inflows and public spending. Although signs of stability are already emerging, access to financing is difficult, which reveals the need to enhance liquidity in financial markets.

"GCC countries can create a competitive edge in this cash-dry period by investing in promising capital-intensive industries, as well as innovative sectors where GCC countries can leverage competitive advantages – for example, renewable energy and logistics services," said Dr Azour, who is also a senior executive advisor at Booz & Company.

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