UAE inflation will hit the low single digits this year as a shrinking expatriate population forces rental prices down even further, a senior economist said on Monday.
“The nation’s economy is tied to rental prices, when prices were high in 2008, inflation stood at (around) 13 percent. But we can now see as prices drop that inflation is right down,” Mohamed Jaber, vice president at Morgan Stanley, said on the sidelines of a conference in Abu Dhabi.
“If this trend continues then rents will drop even further driving inflation into the low single digits,” he said, without being more specific.
Rents have fallen sharply from their mid-2008 highs as the global financial crisis has tightened its grip on the UAE.
The real estate industry has ground to a halt, economic growth has slowed and thousands of expatriates have lost their jobs and left the country.
Egypt-based investment bank EFG-Hermes forecast in March the UAE population would fall by 5.5 percent in 2009, driven by a 17 percent drop in Dubai, while Swiss bank UBS said last month Dubai's population was likely to fall 10 percent in the coming two years.
“A mass exodus of people from the UAE will hit the economy as rent prices will have to drop further still,” Jaber said.
Dubai rental rates fell up to 34 percent during the first three months of 2009, while rents in Abu Dhabi fell up to 20 percent, according to property consultancy Asteco.
The UAE only releases official inflation figures annually, but Economy Minister Sultan Bin Saeed Al Mansouri said earlier this year inflation was set to fall to between 5 to 8 percent in 2009.
Most analysts estimate inflation will be in the low single digits this year, however
EFG-Hermes has forecast the UAE will actually witness 2 percent deflation due to the population decline.
Inflation is estimated at 11-13 percent in 2008, compared to an official 11.1 percent in 2007.