Dubai's economy to expand 3.5 per cent in 2021, says S&P

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Dubai - Expo 2020 likely to provide a more muted boost to GDP growth than expected before the pandemic.


Waheed Abbas

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Published: Tue 19 Oct 2021, 7:55 PM

Global ratings agency S&P expects Dubai’s economy to expand 3.5 per cent in 2021, supported by high vaccination rates in the UAE, Expo 2020 and good performance by the non-oil sector.

The UAE’s 85 per cent of the population has received two doses so far, resulting in a decline in the number of new coronavirus cases in the country and boosting confidence among the businesses and consumers. Dubai is also among the few cities in the world that have opened up for business since the outbreak of the pandemic.

“The opening of Expo 2020 this month following a year delay is likely to provide a more muted boost to GDP growth than expected before the pandemic. We forecast visitor arrivals to Dubai will not return to 2019 levels until at least late 2022. However, the six-month event will improve hotel occupancy and increase footfall in malls, benefitting the retail sector,” S&P analysts said.

The non-oil private sector's performance as measured by the IHS Markit Dubai Purchasing Managers' Index has been above the 50-mark since June 2021, indicating faster growth in business activity on the back of improving demand.

“Although Dubai's dependence on oil is not substantial, it has benefited from improved business sentiment and investment flows into the region due to the oil price recovery this year,” said Trevor Cullinan, primary credit analyst at S&P Global Ratings.

700K travel to Dubai from other emirates daily

S&P pointed out that labour supply has been a key driver of economic activity in Dubai rather than productivity gains or capital investment. “We note that many people live in the emirates surrounding Dubai, especially Sharjah, and commute to Dubai for work. We understand this drives up the number of people working in Dubai by about 700,000 each day,” it said.

S&P projects population growth of a similar rate to its relatively modest medium-term real growth forecast of two per cent over 2022-2024.

The global rating agency noted that it doesn’t factor any significant impact on Dubai's economy related to the Saudi government’s announcement in February 2021 that it will stop signing contracts with companies that have regional headquarters outside Saudi Arabia in 2024. Most international companies' regional offices tend to be in Dubai.

S&P estimated the fiscal deficit at Dh12 billion – which makes up three per cent of GDP – in line with the government's revised budget.

“We estimate government spending largely in line with the budget but expect revenue of closer to Dh49 billion, resulting in a fiscal deficit of near two per cent of GDP,” it said.

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