Dubai's economy is poised for the next phase of growth
Dubai's economy is currently very positive and favourable, and therefore fit for the next phase of growth, marked by a shift from building "physical infrastructure" to building "soft infrastructure", with the aim of further reducing barriers to trade. "Dubai's economy is well positioned to move successfully into the next phase of its economic cycle. Capacity absorption will be a key measure of that success," said an Emirates NBD expert. "Dubai is well positioned to capitalise on these long-term domestic industrial plans, particularly given its logistics and overall infrastructure readiness," the Emirates NBD report said in a note on Wednesday.
"Trade, domestic manufacturing, e-commerce, a recovering real estate market and a recovering tourism sector are also critical to the Emirate's long-term economic potential," Emirates NBD said. "We will see an increasing shift from physical infrastructure build-up to policy measures that refine and deliver on the 'soft infrastructure' needed to support the Emirate's long-term growth strategies," they added.
Dubai's non-oil private sector economy continued to grow in January, albeit at a slower pace, driven by a rise in new orders and increased production, despite restrictions as a result of the Omicron variant. Dubai stood at 52.6 in January, down from 55 in December, however, the index was above the neutral 50 mark for the 14th consecutive month, according to the Emirate's IHS Markit purchasing managers' index reading. Despite this, this all points to a solid rebound in non-oil private sector business conditions, as a reading above 50 indicates signs of economic expansion, while below 50 indicates contraction.
The Dubai economy grew by 6.3% year-on-year in the first nine months of last year, thanks to a strong rebound in the COVID-19-affected hospitality, retail and real estate sectors, according to preliminary data from the Dubai Statistics Centre (DSC). Thus, Emirates NBD has estimated that Dubai's economy grew by approximately 5.5% in the full year 2021, surpassing the 4% achieved in 2020. With slower global growth, higher interest rates and a stronger US dollar expected this year, experts at Emirates NBD expect growth of 4 to 4.5% in 2022.
"The Emirate sees that the development of its manufacturing sector will be an important element in reducing economic vulnerabilities, especially to external shocks such as volatile energy prices, which is a key objective of economic diversification." "It also makes the economy more self-reliant and reduces dependence on imports, which is positive for its long-term trade dynamics," the Dubai lender said. "Dubai's investment in trade-enabling infrastructure, such as its seaports and airports, allows it to be a crucial east-west transhipment point, similar to trade-based economies such as Singapore and Hong Kong, which is important for post-pandemic recovery." Dubai's policies "will drive the way forward for this sector as a critical part of the Emirate's economic diversification," he added.
Likewise, Dubai's real estate market posted good data in 2021, with flat and villa sales prices showing a first annual increase since 2014. "We see the improvement in residential flat and villa sales and rents as a sign of stabilisation after a multi-year decline," the report said. It believes the impact on mortgage demand will be "moderate" at least in the first cycle of 2022. "In this new year, inflation in Dubai is expected to accelerate to more than 2 per cent, after several years of declining prices driven by falling rents," the Emirate's largest lender said.
Tourism, too, will play a vital role, especially after the recovery in tourist arrivals since last year. "While the headwinds from the latest Covid variant continue to cloud the outlook for the global tourism sector, a focus on the right set of policies that reduce risks and keep the doors open for tourists, as well as leveraging its high-quality travel infrastructure, will allow Dubai to chart a determined path towards normalisation," Emirates NBD said.
For the development of the next economic phase, the "industries of the future" will play a major role, including space, biotechnology, healthcare technology and other sectors driven by Fourth Industrial Revolution technologies. "The regulatory framework will be key," the lender noted, referring to recent positive policies, such as allowing full foreign ownership of companies and easing SME financing.
