Dubai: Challenging global macro economic environment and sharp decline in oil prices will pose challenges to Dubai’s economy, but there is no immediate threat of a slowdown, said Dr. Mohamad Lahouel, Chief Economist of Dubai Economic Department (DED).
“Dubai’s economic growth has been steady in recent years despite high volatility in the international environment from lingering recession in the EU and in Japan, weakening of growth in main emerging markets, sharp drop in oil prices …
Still, Dubai’s adaptive capacity and its strong role as a trade hub promise to deliver healthy growth in 2015,” said Lahouel presenting Dubai’s economic outlook for 2015 at the UAE Economic Outlook Forum.
DED statistics show Dubai’s GDP grew at 4.6 per cent in 2013,4 per cent in 2014 (based on results for the first half and estimates for the second half) and is projected to grow at 4.5 per in 2015.
Trade, real estate services and manufacturing are expected to be the largest contributors to growth (58 per cent) in 2015. “Dubai’s economy is well diversified, stronger and more efficient than pre-crisis years. We are confident that the economy can withstand international markets volatility,” said Lahouel.
The recent sharp decline in oil prices, according to DED has both positive and negative implications for Dubai’s economy. On the positive side, it is expected to result in decrease in the cost of transportation boosting the number of travellers and possibly increased movement of goods. Tourism in general is expected to benefit because of the decreased cost of travel and higher purchasing power resulting from appreciating dollar.
The negative impact of lower oil price on Dubai’s economy will be manifested through lower trade volumes through Dubai, especially driven by oil producers in the Middle East, Africa and Russia. “The foreign trade of those countries may slowdown which may affect re-exports, logistics and transportation,” said Lahouel.
However, a part this downside is likely to be offset by countries that are benefiting from decline in oil price, resulting in higher trade flows into those countries such as India, China, emerging markets of Asia and European countries.
Lahouel said, given the significant buffers Dubai’s economy has, the impact of oil prices and global economic factors on Dubai government spending and consumer spending will be marginal.
“Government has been exercising fiscal discipline while investment spending has been on the rise. Improved performance in efficiency and financial health of Government Related Entities (GREs) support the strength of the economy,” he said.
Rising cost of living will be a challenge for Dubai’s economy. The rise in the cost of housing accounts for most of the inflation recorded in 2014. Rents and real estate prices have sharply increased since mid-2013 but there are signs of a slowdown as the Central Bank and Dubai Government regulations and increased registration fees have slowed down housing costs.
