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UAE and Qatar may see negative inflation

Reuters reported that 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 that inflationary pressures have dropped off rapidly across the oil exporting region as crude prices fell from peaks of USD 147 per barrel in July 2008 and the dollar strengthened, easing import costs for states that peg their currencies to the US currency. It said that “The UAE and Qatar will see the greatest reversal in inflation trends.”

The note said that but Qatar’s drop in rental prices was due primarily to an increased in housing supply in 2008 the UAE housing market was seeing a structural correction. 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.

EFG Hermes said that “We are forecasting the rental prices will drop further in the H2 of 2009, resulting in overall rental prices falling in Dubai by around 23% and in Abu Dhabi by 5% in 2009.”

EFG-Hermes forecast negative inflation of 5.3% in the UAE in 2009 compared to 12.3% in 2008. It said that an estimated 5% contraction in rental prices in Dubai in 2010 would push the inflation rate back up to 1.5% that year. The investment bank forecast Qatar would have negative inflation of an estimated 4.6% this year before resuming an upward tick to a positive rate of 2.7% in 2010.

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