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Gulf faces two years of slow growth with property sector badly hit

Growth in gross domestic product in the United Arab emirates, the world's fifth-largest oil exporter, would fall to low single digit levels in 2009 and 2010, Sultan Bin Nasser Al Suwaidi said, as an economic boom spurred by six years of high oil prices comes to a close.

But he predicted that a slump in the booming property sector would be limited as the country continues to adopt an expansionary fiscal policy.

Tourism would also slow and force hotels to cut room rates, he warned. An influx of foreign investors fuelled a vigorous surge in property prices but it is now starting to reverse.

But construction is not expected to slow down significantly as government departments will find prices attractive enough to undertake major public infrastructure projects, he added.

The UAE would restrict some practices to ensure it could not be dragged into future crises, he said, adding the central bank was examining bank lending to see if there was any need to provide extra provisions.

But Egyptian bank EFG Hermes, is predicitng significant pressure in 2009. It expects loan quality to deteriorate throughout next year, and said this will have a significant impact on short-term results. Personal lending will see some deterioration also.

But the region is awash with rumours and the property sector is seeing considerable cut backs and job losses as well as major projects being cancelled or put on hold. No one is sure who to believe at present.

This week a reputable Turkish newspaper, for example, reported that Dubai-based property developer Damac had sold a 40% stake in its business. This prompted the company to issue a robust denial. 'Damac has not sold a stake to anyone and has no plans to invest in new markets at this time. This story is totally baseless and not true. It has caused unnecessary confusion amongst the various stakeholders of Damac,' said Niall McLoughlin, senior vice-president for corporate communications.

In November Damac slashed 200 jobs and said it would not be expanding into new markets due to the global financial crisis. The developer also said it was looking to reschedule the construction of select projects.