Economic recovery in the UAE looks set to sustain while the overall gross domestic product growth is projected to moderate at 2.5 per cent in 2012, the International Monetary Fund, or IMF, said on Thursday. The Washington-based Fund said that UAE’s non-hydrocarbon growth would remain strong in 2012 with the real non-oil GDP (gross domestic product) projected to further strengthen to post 3.5 per cent increase in 2012. In 2011, the overall GDP expanded by 4.9 per cent to surpass expectations on the back of higher oil output and expansion in the non-hydrocarbon sector, the IMF said in a statement. The UAE’s real GDP growth is projected to moderate to 2.5 ?per cent this year due to limited potential for further increasing oil production in the near term amid an uncertain global ?economic environment, but ?non-hydrocarbon growth will ?remain strong, said Harald Finger, who led an IMF mission to the UAE during February 28-March 14 to conduct discussions for the Article IV consultation with the country. The mission met with Minister of State for Financial Affairs Obaid Humaid Al Tayer, Minister of Economy Sultan bin Saeed Al Mansouri, Central Bank Governor Sultan bin Nasser Al Suwaidi, other senior government officials, as well as representatives from the business and financial community. IMF’s moderate estimate of the UAE’s GDP growth in 2010 falls short of the four per cent increase forecast by Economy Minister Al Mansouri on the sidelines of the World Economic Forum in January. Standard Chartered Bank has projected a 2.4 per cent growth for the UAE in 2012 versus 3.8 per cent in 2011 while National Bank of Kuwait said it expects record low inflation would spur further economic growth in 2012 following a 4.6 per cent growth in 2011. “The UAE economic recovery looks set to continue. Real GDP growth reached an estimated 4.9 percent in 2011, supported by increases in oil production,” Finger said, noting that the Washington-based IMF had earlier projected 3.5 per cent growth for the UAE economy, the second largest in the Arab world. Backed by strong trade, tourism, and manufacturing, the UAE’s non-hydrocarbon growth also strengthened to around 2.7 per cent, he said. “Real non-oil GDP growth is projected to further strengthen to 3.5 per cent in 2012. With limited potential for further increases in oil production in the near term, overall GDP growth is expected to moderate to 2.3 per cent,” Finger said. Inflation in the UAE is expected to remain subdued at around 1.5 per cent this year. “The current uncertain global economic and financial environment poses a number of risks to this outlook,” he said. Finger said public spending in the UAE should be scaled back in the face of risks that oil prices would fall on weak growth prospects in advanced economies. “The current uncertain global economic and financial environment poses a number of risks. The weak growth prospects in the advanced economies could lead to a pronounced decline in oil prices if regional geopolitical risks subside,” ?he said. “The large increases in public expenditure that took place in response to the 2009 crisis should now be unwound as they expose the UAE to the risk of falling oil prices.” “The planned gradual pace of fiscal tightening will strengthen public finances without undermining the economic recovery. The recovery will also continue to be supported by an accommodative monetary stance under the peg to the US dollar,” he added. The IMF official observed that substantial progress has been made in the debt restructuring of government-related entities (GRE), but several troubled GREs are still in the process of restructuring. “The GREs are still faced with ?high refinancing needs and continued reliance on foreign ?funding. “While they are increasingly managing their upcoming rollovers proactively, the current uncertain global financial environment still constitutes a key risk. Improved transparency and communication would support the market refinancing of GRE debt. Looking ahead, the authorities should continue to improve regulation, oversight and governance to manage the remaining GRE risks,” Finger said. “The banking sector remains resilient to shocks, thanks to substantial liquidity and capital buffers. Although the banking system has remained comfortably liquid, a foreign funding shock could generate some foreign currency liquidity tightening in the banking sector. Despite a considerable rise in non-performing loans since 2008, the banking system remains well-capitalised. However, care should be taken to avoid a further increase in banks’ loan concentration to the government and GREs,” the IMF official said. Finger praised the UAE authorities for good progress made in establishing databases and improving the quality of economic statistics, but cautioned that more progress is needed to strengthen key statistics, including balance of payments, national accounts, and fiscal accounts.