Economic diversification and Expo 2020 to shield Dubai from oil price rout

A diversified economy and Expo 2020 will protect the emirate from any oil-related turbulence and provide impetus over the next four years – and beyond – for sustainable growth, despite a slowdown in the second half this year.

The Expo 2020 project is expected to drive economic expansion in Dubai in the next year and beyond. Marwan Naamani / AFP

Dubai’s economy is expected to slow down for the year as a whole, as the construction and property sectors languish and global trade flows ebb. But, in the end, the emirate’s diversification will shield it from the oil price rout.

Last year, the Dubai economy grew by a healthy 4.1 per cent, according to data from the Dubai Statistics Centre.

For this year, forecasters are calling for growth of between 3 per cent and 4 per cent. The Expo 2020 project is expected to drive expansion next year and beyond.

At the higher end, the IMF forecast in April that Dubai would grow by 3.7 per cent this year. The National Bank of Abu Dhabi, meanwhile, is predicting 3.5 per cent growth and the research house IHS is at the low end, with a forecast of 3.1 per cent.

Alp Eke, the senior economist at NBAD, said this year’s expected easing is “mainly because of a slowdown in construction and real estate”.

He said: “The drop in growth is negligible, because Dubai will not be severely impacted by the decline in oil prices.”

Mining and quarrying, which includes the oil sector, contributed only 2.2 per cent to Dubai’s economy last year. The biggest sector is wholesale and retail, with 29 per cent, followed by property, with 15 per cent.

“Expo 2020 and increased retail and tourism sector activity due to safe haven status will support the growth and counteract the negative impact of oil price,” Mr Eke said.

“In 2016, transport and communication as well as [the] tourism sector are expected to benefit the most.”

This bullish view of Dubai’s economy is supported by last month’s increase in private-sector business activity in the emirate to its highest level since March last year and the trough in February, according to data gathered by Emirates NBD.

The bank’s Dubai Economy Tracker Index, which tracks a number of non-oil private sector indicators, shows new sales wins and greater confidence among businesses and their clients meant the latest expansion of private sector output was above the index average since it began in 2010.

“Trade, transportation and communication, and financial services are likely to post healthy growth as well [as tourism], albeit more moderate through the remainder of 2016 before gathering pace in 2017,” said Bryan Plamondon, the director of Middle East economic analysis at IHS.

“Other sectors exposed to weaker growth include manufacturing, utilities and construction. Although these sectors should enjoy better prospects in 2017 as domestic and external conditions stabilise and improve.”

HSBC, however, has a more bearish view of the Dubai economy. “Weak growth in Dubai’s key service export markets should continue to weigh on demand,” said Razan Nasser, a senior economist for the Middle East and North Africa region at HSBC Middle East.

“The slowdown in global trade also continues to pull back the transport and logistics sectors and the dollar-driven dirham strength is still impacting the competitiveness of the leisure and retail industries, making it difficult to draw in investments, including into the real estate sector.”

Meanwhile, Expo 2020 should galvanise the economy in the next three years, once the projects related to the global exhibition start kicking in. IHS projects UAE’s non-oil growth to average 4.5 per cent between next year and 2020, partly thanks to the economic boost from the Expo.

“Looking further ahead, Dubai’s preparation to host Expo 2020 should provide a further engine for growth as projects are initiated, with the expo particularly important for the construction, transport, tourism and hospitality sectors,” Mr Plamondon said.

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