Dubai’s economy started 2022 on a strong note, posting an annual gross domestic product growth of 5.9 per cent, according to preliminary data by the Dubai Statistics Centre.
The fastest-growing sectors in the first quarter were hospitality, and transport and storage, which expanded 47 per cent and 40 per cent, respectively, off the low base of the first quarter of 2021, when many travel restrictions were still in place.
The strong performance of the tourism sector continued into the second quarter, with total visitor numbers reaching 6.2 million in the first five months of the year, 14 per cent below pre-coronavirus levels.
Hotel occupancy in Dubai increased to 73.1 per cent in May this year, compared with 58.5 per cent a year ago, and revenue per available room (RevPAR) — an industry benchmark — rose 46 per cent, year on year, even as the supply of rooms grew by 9 per cent during the period.
The real estate services sector, surprisingly, slowed in the first quarter of this year, expanding 1.3 per cent annually after posting a growth of more than 20 per cent, year on year, in 2021.
Last year’s growth in real estate services GDP reflected the sharp increase in the number of property transactions in the emirate, but Dubai Land Department data indicates that there was further strong growth in transaction volumes in the first quarter of this year, which suggests that this component of Dubai’s GDP may be revised higher in subsequent data updates.
First-quarter GDP data points to slightly slower economic growth than was achieved for the whole of 2021. Dubai’s economy rebounded 6.2 per cent last year, following the 11.8 per cent pandemic-driven contraction of 2020.
We think GDP growth will slow in the second half of this year for several reasons, including the higher annual base effects from the second quarter of 2021.
Higher borrowing costs — the US Federal Reserve is expected to raise rates by at least another 200 basis points by the end of this year, with the UAE following suit — and inflation will leave households with less to spend on non-essential items and this could weigh on domestic consumption.
With the global growth outlook deteriorating, international goods trade will probably slow in the second half of the year as well, which would be a headwind for Dubai’s transport and logistics sector.
Finally, a stronger US dollar is expected to weigh on tourism by making the UAE more expensive for visitors, relative to European and Asian destinations, even as global international passenger traffic recovers from the pandemic lows. However, the FIFA World Cup in Qatar will probably underpin demand in the UAE’s hospitality sector in the final quarter of the year.
Despite these headwinds, the strong first-quarter GDP reading means that Dubai’s economy could still post solid growth in 2022. Emirates NBD forecasts 4.5 per cent GDP growth for the emirate this year.
Khatija Haque is chief economist and head of research at Emirates NBD.