ECONOMICS

Economics

Economics

Introduction

In 2008 UAE and other Arab countries experienced some rapid changes in terms of their economic fortunes. Natural gas, oil prices, and the prices of many commodities continued to rose rapidly during the first 6 months of 2008. And at the very same time, the UAE had to face the rapidly rising prices of raw materials and rising food that had threatened the social stability and the economy, and by July the global growth expectations being low and the financial crisis effects caused a huge collapse in the oil prices, and because of which as a result the oil exporters had to face a fall in the receipts of hydrocarbon, surplus decline on the balance of their payments, and also the terms of traded deterioration. The banks which were the holders of the wealth funds and other equities were not exposed overly to the United States derivatives market or mortgages had to suffer huge amount of losses (Rivlin, 2010).

The rise in inflation caused a large amount of problems for the United Arab Emirates because of the costly surge for foreign laborers living expenses reduced to a large level the appeal of the country's labor market. The fixed exchange rate along with the high inflation is equivalent to the real appreciation for the currency. The IMF had also warned the UAE on their annual report that the inflation rate was too high and the economy itself was operating far above its capacity and recommended for a tightened fiscal policy so that the inflation could be contained and the coordination could be strengthened among the other authorities of the capital market. The objective of this paper is to analyze the world economy has affected the economy of the UAE (Middle East Business, 2009)

Discussion

According to the article 'UAE economy to slow down 3pc this year' by Zaher Bitar the economy of the UAE is most likely to decrease about 3 percent this year, which is due to a combination of factors that includes the gloomy outlook of the global economy, Euro zone crisis and the oil prices being lowered (Bitar, 2012).

The theory behind this fact is the concept that as an economy tries to integrate with the global economy, its reliance on the global markets also tends to increase, because those markets become a huge part in the contribution towards the economy GDP (Gross domestic product), and if the economy is facing high inflation, ...