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Rising inflation another area of concern for Dubai

Dubai: A sharp drop in oil price, if persisting, may have mixed effects on Dubai’s economy, but rising inflation is another area of concern for the emirate, Dubai Economic Department’s (DED) chief economist Mohamad Lahouel said in his address at the two-day UAE Economic Outlook Forum in Dubai on Tuesday.

Explaining the positive effects, Lahouel explained that there will be a decrease in the cost of transportation for passengers and cargos, and at the same time there will be an increase in the number of travelers and visitors and possibly in international trade in goods. Talking about the negative effects, he said it will definitely reduce oil revenue of oil exporting countries, in the region and other countries such as Russia and some African countries. The foreign trade of those countries may slow down, which may affect re-exports, logistics and transportation, Lahouel added.

He said that given the significant buffers Dubai’s economy has, the impact of oil prices and global economic factors on the emirate’s spending and consumer spending will be marginal.

“The government has been exercising fiscal discipline while investment spending has been on the rise. Improved performance in efficiency and financial health of GREs [Government Related Entities] support the strength of the economy,” he explained. Government ongoing capital spending: expected to be steady in 2015, but changes may take place in 2016, according to Lahouel.

Households may anticipate low future oil prices and lower income and start reducing their spending in 2015, he said, adding that the fall in the price of oil will have positive effects on real income in oil importing countries, some of which are Dubai’s important partners in trade of goods and services such as India and China.

“In the past, productivity hardly contributed to growth in recent years. The experience of the last few years has led various economic actors to seek higher efficiency and financial sustainability As a result, productivity is expected to rise gradually, with a positive contribution to overall growth expected for 2015 and beyond,” he explained. He suggested that with improvements in education and training and development of SMEs, the contribution of productivity to growth will be strengthened.

Talking about inflation, he said that the increase in the cost of housing accounts for most of the inflation recorded in 2014. Rents and real estate prices have sharply increased since mid-2013 but there are signs of a slowdown, he added. The government is closely monitoring the pace of inflation and is intent on maintaining Dubai’s competitiveness for both trade in goods and services and for attracting skills, he said.

— abdulbasit@khaleejtimes.com