DUBAI – The economy of Dubai, whose financial woes rattled world markets in late 2009, is tipped to grow over the next two years on the back of robust economic activity in Asia, economists have stated.
“We’re quite bullish” about economic growth in the Gulf emirate, a big-spending boomtown before its debt crisis, said Farouk Soussa, chief economist at Citibank. “This year, we expect growth to be at 4.5 percent. We expect growth in 2012 to be at 6.3 percent,” Soussa told participants at a conference on Dubai’s economic outlook. Its economy contracted about 2.4 percent in 2009, according to Dubai’s Department of Economic Development (DED), after the world financial crisis dried out foreign backing for an economy growing at breakneck speed.
DED chief economist, Mohammed Lahouel, also sounded upbeat on economic growth prospects for the trade hub, pointing out that trade and logistics such as ports were spearheading the recovery. “Given the vibrant recovery of the trade and logistics sector, growth is expected to accelerate in 2011… Conservative estimates would put growth between three to four percent in 2011,” he said. “It was at 2.5 percent in 2010,” he added.
Dubai is geographically well-located to reap benefits from rapid economic growth in Asia, according to Marios Maratheftis, a research chief at Standard Chartered bank.”The global economy is in a super cycle, but this time it is in the east. We expect strong growth… Dubai is well located to benefit from this growth,” Maratheftis said.
Lahouel pointed to growth for Dubai’s major trading partners in Asia, especially India. “We expect in 2011 a continuation of recovery due to fast rising demand in major trade partners,” he said. A combination of location and modern infrastructure boosts Dubai’s competitive advantages, Soussa opined.
“Location is at the heart of success for Dubai as a trade hub. UAE infrastructure comes first in the region,” he said. Tourism and retail basics were also strong. Maratheftis stressed that Dubai’s current growth was ‘better quality’ than the massive expansion of the past that was driven by excess liquidity. “A growth rate at four percent, driven by logistics and tourism, is more sustainable.”
However, Dubai still has to deal with the legacy of its battered real estate sector. The sector grew rapidly until it crashed with the global financial crisis, sending property prices tumbling to half their peak values registered in summer 2008, and creating a supply glut. Soussa said the legacy would continue to “impact on the financial sector’s balance sheet,” as demonstrated in banks’ exposure to real estate lending. The ‘excess capacity’, while exerting downward pressure on prices and rents could at the same time “stimulate new business and large foreign direct investment flows,” Lahouel said.
Dubai sent jitters through global financial markets in late 2009 when it announced a freeze on debt payments by its largest group, Dubai World. But it has since reached a settlement with creditors to reschedule $14.7 billion of Dubai World’s debt, while converting $8.9 billion of government aid into equity.
The emirate was boosted last year by $20 billion in aid from the federal government of the United Arab Emirates, of which it is a member, and from oil-rich Abu Dhabi, which heads the federation.
