The retail sector is one of the major industries that will help economic recovery
The retail sector is one of the major industries that will help economic recovery

Dubai GDP seen at at pre-Covid levels by 2023

Dubai - Key sectors to remain challenged, but emirate’s robust Covid immunisation drive to help restore normalcy


Issac John

Published: Mon 1 Mar 2021, 9:56 PM

Last updated: Mon 1 Mar 2021, 9:58 PM

Key sectors in Dubai, particularly real estate, tourism, hospitality and retail, will likely remain under pressure for the next 12-24 months despite the remarkable headway the UAE has been making in its vaccination drive, analysts at S&P Global Ratings said.

“We think the 2020 shock will continue to reverberate through Dubai’s economy, and GDP will return to the 2019 level only in 2023, keeping the pressure on most sectors until then,” say S&P analysts Sapna Jagtiani and Timucin Engin.

“As a global aviation and transportation hub, and a major tourism and retail shopping destination, Dubai’s economy has been hit by the impact of Covid-19. We expect GDP growth to recover this year from the sharp recession of 2020 triggered by the pandemic and low oil prices,” they wrote in their report Dubai’s property market in 2021: A tough year on the road to recovery.

Last year, Dubai saw the sharpest population decline in the GCC: 8.4 per cent versus the region average of four per cent. Expo 2020 will now take place from October 1, 2021 to March 31, 2022, after a delay due to Covid-19, and should provide a platform for a recovery in activity, they argued.

Although there will be only marginal improvements in 2021, the normalisation of relations with Israel, as well as the restoration of ties between Qatar and the four Arab countries previously boycotting the country, should support tourism and real estate investments. The UAE is reportedly leading the vaccination effort in the region, with one of the highest immunisation rates. High vaccination rates could help the UAE’s tourism sector recover earlier than others.

S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world.

“Widespread immunisation, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunisation by year-end or later,” it said.

However, S&P expects real estate companies’ profitability to remain under pressure and leverage to be high.

“Absent a substantial recovery in revenue, companies are likely to focus on cost optimisation, proactively managing their liquidity, and preserving their cash flows. Some companies are expected to reduce or eliminate dividends to conserve cash, and sell assets to reduce leverage. Rated Dubai-based real estate companies have good liquidity and access to funding, despite currently trying times.”

Dubai’s residential real estate recovery would be led by a cutback of new supply, assuming new launches by developers remain minimal, and low mortgage interest rates that encourage residents to buy property rather than rent, S&P said.

Declining prices will also make investing in Dubai’s residential property attractive. S&P expects transaction volumes to remain robust because housing units will be cheaper. Villa prices will be more resilient as people look for larger homes as movement restrictions continue as secondary market transaction volumes surge.

However, the retail real estate recovery could be curbed by weak tourism activity, which is not expected to return to pre-pandemic levels in 2021. Other headwinds include slow economic rebound and low consumer confidence depressing discretionary spending, and increased competition as new malls are delivered.


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