UAE-Qatar 'facing negative inflation'

DUBAI: Qatar and the UAE are likely to see negative inflation this year due to falling house prices, while inflation rates will slow sharply in Saudi Arabia and Kuwait, EFG-Hermes said in a note yesterday.
Inflationary pressures have dropped off rapidly across the oil-exporting region as crude prices fell from peaks of $147 a barrel in July last year and the dollar strengthened, easing import costs for states that peg their currencies to the US currency.
"The UAE and Qatar will see the greatest reversal in inflation trends," EFG-Hermes said in the research note.
But Qatar's drop in rental prices was due primarily to an increased in housing supply last year, the UAE housing market was seeing a "structural correction," the note said.
It added that a decline in population - due to an exodus of expatriate workers as the financial crisis led to thousands of job cuts - was also a contributing factor in both nations, the note said.
"We are forecasting the rental prices (in the UAE) will drop further in the second half of 2009, resulting in overall rental prices falling in Dubai by around 23 per cent and in Abu Dhabi by 5pc in 2009," EFG-Hermes said.
Housing, which includes rents and utilities, accounts for 39.3pc of the UAE's overall consumer price index.
EFG-Hermes forecast negative inflation of 5.3pc in the UAE this year, compared to 12.3pc last year. It said that an estimated 5pc contraction in rental prices in Dubai next year would push the inflation rate back up to 1.5pc that year.
The investment bank forecast Qatar would have negative inflation of an estimated 4.6pc this year before resuming an upward tick to a positive rate of 2.7pc next year.
Qatar inflation soared to 15.2pc last year.
The bank said the decelerating pace of rental price growth in Saudi Arabia and Kuwait would slow inflation in those countries.
"The slowdown in housing costs is contributing to the disinflation, but it will nevertheless be the central reason for Saudi Arabia avoiding negative inflation in 2009," the bank said, noting that rental prices are still rising in Saudi Arabia, albeit at a slower pace.
Saudi Arabia will see inflation of around 4.8pc this year, EFG-Hermes predicted. This compares to 9.2pc last year.

Source: GDN