GDP numbers confirm what we already knew
Dubai’s economy grew at its slowest pace since 2010, according to data released yesterday by the Dubai Statistics Office. Real GDP growth stood at 1.9% in 2018 compared to 3.1% in 2017, marking the third consecutive year when economic growth has decelerated. The long-delayed numbers confirmed what most economic indicators have been pointing to: the country’s slow growth dynamics. The statistics office, however, has not yet released quarterly numbers for 2018.
Manufacturing leads the slowdown; construction and real estate show resilience
Almost all sectors have witnessed a slowdown, though, surprisingly, only two have registered contractions, namely manufacturing and mining. Transportation, hospitality, telecommunications and public administration have all seen a sharp slowdown, signaling the challenges of weakening external demand amidst weak global economic conditions, a strong dollar, and low oil prices. On the contrary, real estate, construction, and wholesale and retail trade were the three sectors that printed accelerated growth – the three alone accounted for nearly two thirds of 2018’s real GDP growth. The resilience of the construction and real estate sectors, measured by real growth rather than price moves, comes as no surprise in light of the strong credit growth in both sectors and growing project awards in 2015-17.
Weak outlook likely to persist in 2019; policy decisions are the key catalys
All indicators point to Dubai’s weak growth dynamics continuing in 2019; however, we expect growth to stabilise close to 2018 levels. The global economic cycle remains unsupportive to Dubai’s open economy, and relatively low oil prices are still leading regional governments to maintain largely conservative fiscal stances. In addition, signs of weakness are showing in the relatively resilient sector, namely construction, with project awards falling in 2018 for the first time since at least 2010. Finally, the government’s plans to scale back investment spending, following a few years of strong growth, are also likely to dent growth. The reversal of such a weak growth backdrop remains largely conditional in the short term on the government’s policy initiatives to boost growth. Initiatives taken last year to extend visas to various sections of the expat community, consideration of opening up the economy to foreign investment and reducing fees for businesses are all moves in the right direction, even though these have only scratched the surface, in our view. Most of those initiatives need more depth, whether by widening the scope of the visa extension to expats (something that would boost domestic demand) or by taking a much wider approach towards opening the economy to foreign investment, rather than considering only a number of “strategic sectors”.
Mohamed Abu Basha