The global economy is slowing. The latest JP Morgan global composite purchasing managers’ index slipped into contraction territory in August for the first time since June 2020.
Surging inflation in developed economies is weighing on growth and higher interest rates are contributing to the slowdown. In China, where inflation remains low by global standards, the Covid-zero policy has been the main drag on activity.
Despite the weakening global economic data, the UAE’s non-oil sector appears to be relatively resilient year to date.
The Dubai PMI rose to a new three-year high in August on strong growth in business activity and new work. Both the travel and tourism and the wholesale and retail sectors showed an improvement in business conditions last month and lower fuel prices have led to easing cost pressures on companies.
The number of international visitors to Dubai exceeded 8 million in the year to July, a sharp improvement on last year as global travel restrictions have eased, but still around 15 per cent below pre-pandemic levels.
The rebound in the tourism sector is also reflected in sharply higher hotel occupancy levels in both Dubai (71.7 per cent) and Abu Dhabi (68.2 per cent) in the first seven months of this year.
The tourism sector in the UAE is expected to perform well through the end of this year as global tourism continues to recover from the pandemic — Australasia’s long haul markets have only recently re-opened — as well as the influx of visitors to the region for the Fifa World Cup, which will be held in Qatar in the fourth quarter.
Dubai’s real estate sector has also seen strong growth, both in terms of the number of transactions, which were up 60 per cent year on year in the first half of 2022, as well as the value of transactions, which grew more than 85 per cent year on year over the same period.
Real estate consultancy Betterhomes reported that there was strong growth in the number of buyers from India, Europe and Russia in the first half of 2022, and that investors accounted for 68 per cent of all buyers, up 10 percentage points from the same period last year.
While Dubai’s economy appears to be holding up relatively well even as the global economy slows, the outlook for 2023 is more uncertain.
Higher interest rates may slow investment as well as consumption, and a stronger US dollar makes makes the GCC with its pegged currencies relatively more expensive for both investors and visitors.
Around half of all international visitors to Dubai come from emerging markets, where currencies have weakened significantly against the dollar, but even developed markets like the eurozone and the UK have lost purchasing power in dirham terms.
But a stronger US dollar, to which the dirham is pegged, means imports are less expensive for UAE consumers and businesses, helping to keep inflation in the region relatively contained.
Even as oil prices have declined in recent weeks on the back of mounting global recession fears, they remain well above the budget break-evens for GCC oil producers, allowing governments to continue their domestic investment programmes, which should underpin growth in the UAE and the rest of the region next year.
Khatija Haque is chief economist and head of research at Emirates NBD