UAE starts to feel the cash crunch

There is growing evidence in shopping malls that this society is starting to tighten its purse strings.

People shopping for gold at a store in Bur Dubai, although jewellery outlets in the UAE are reporting a slowdown in sales.

ABU DHABI // There is growing evidence in the shopping malls that a society renowned for free spending is starting to tighten its purse strings. As in the UK and US, concern over a looming world recession seems to have dented the confidence of UAE consumers, with people thinking twice before splashing out. In addition, banks and finance companies have become less generous in lending, forcing people to live within their means, while the region's plunging stock markets have eroded many people's investments.

"I'm very worried about the economic crisis," said Gilbert Pingol, a Filipino systems administrator living in Abu Dhabi, who was shopping in Al Wahda Mall. "There's a possibility our jobs will be lost so we're definitely affected, but maybe not as much as other countries because of the oil. "I'm spending less on luxury items such as electronic gadgets and I'll go back home on holiday once a year instead of twice, like I usually do."

Pauline Gear, from Wales, who has lived in Abu Dhabi for 17 years, said few would be spared from the global slump. "Of course we'll change our spending habits. Everybody will," Ms Gear said. "I will go back to what my mother used to do. I'll cook more at home and maybe won't entertain as much." Although the UAE has not felt the full impact of the economic slump, shoppers in Abu Dhabi said they would err on the side of caution with family holidays and buying luxury items such as jewellery, perfume and electronic goods.

Despite its oil wealth, sluggish consumer spending could have serious consequences for a UAE economy increasingly reducing its reliance on oil and gas revenues, which account for about a quarter of gross domestic product. A decline in consumer spending is considered one of the surest signs of economic hard times. In the US, consumer spending accounts for about two-thirds of the economy. More than 35 per cent of respondents to a survey of 21,000 households by The Nielsen Company said they would spend less this year than last year.

The trend will almost certainly be replicated in the UAE, said Piyush Mathur, the regional managing director at The Nielsen Company, which specialises in studying consumer trends. "Fortunately, people here still have their jobs and are clinging hard to them, but when they see their own company is reducing jobs worldwide they might be a bit more cautious," Mr Mathur said. Despite predicting a slowing of consumer spending, he said he expected the retail market to continue to grow, although at a rate below 10 per cent, compared with 15 per cent in the past.

On a more optimistic note, Mr Mathur said an anticipated fall in rental and food price inflation might free up income for retail spending. Andy Barnett, a professor of economics at the University of Sharjah, said the loss of income from consumer expenditure would be "small but not trivial" in Dubai, and less so in other emirates. Shops in Al Wahda Mall selling jewellery and beauty products confirmed that consumer spending had fallen.

A sales assistant at Areej, the cosmetics, perfume and accessories chain, said the average customer had halved the amount spent during a single shopping trip from about Dh600 (US$165). Although she expected the lull to be temporary, she said there was concern that sales would be affected during the crucial New Year period. Ahmed Hassan, the assistant sales manager at the jewellery chain Damas, added: "The market isn't moving as before. Sales were higher this time last year, especially for diamonds. This will affect all markets - clothes, jewellery, everything except food because people won't stop eating. But I think the situation will be solved very soon."

One sector expected to suffer more than most was tourism. Riyas Kunnath, of the Salem Travel Agency in Abu Dhabi, said airline passengers were increasingly price sensitive, choosing to fly with budget carriers and cancelling trips if ticket prices did not fall within their budgets. [e-mail]