The world economy is slowing down. The latest JP Morgan global composite purchasing managers’ index slipped into contraction territory in August for the first time since June 2020.
Rising inflation in developed economies is weighing on growth, and higher interest rates are contributing to the slowdown. In China, where inflation remains low by global standards, the Covid-zero policy has been the main brake on activity.
Despite the softening global economic data, the UAE’s non-oil sector appears to be relatively resilient year-to-date.
Dubai PMI rose to a fresh three-year high in August on strong growth in business activity and job creation. The travel and tourism sectors, as well as wholesale and retail trades, showed improving business conditions over the past month and lower fuel prices have eased cost pressures on businesses.
The number of international visitors to Dubai surpassed 8 million in the year to July, a significant improvement from a year earlier as global travel restrictions eased, but still around 15 percent below pre-pandemic levels.
The recovery in the tourism sector is also reflected in significantly higher hotel occupancy rates in Dubai (71.7 percent) and Abu Dhabi (68.2 percent) in the first seven months of this year.
The tourism sector in the UAE is expected to do well by the end of this year as global tourism continues to recover from the pandemic – Australasia’s long-haul markets only recently reopened – as well as the influx of visitors to the region for Fifa World Cup to be held in Qatar in the fourth quarter.
Dubai’s real estate sector is also showing strong growth, both in terms of the number of transactions, which have increased by 60 percent year-on-year in the first half of 2022, and the value of transactions, which has increased by more than 85 percent year-on-year year in the same period.
Real estate consultancy Betterhomes reported that the number of buyers from India, Europe and Russia grew sharply in the first half of 2022 and that investors accounted for 68 percent of all buyers, up 10 percentage points from the same period last year.
While Dubai’s economy appears to be holding up relatively well despite the slowdown in the global economy, the outlook for 2023 is more uncertain.
Higher interest rates can slow both investment and consumption, and a stronger US dollar makes the GCC, with its pegged currencies, relatively more expensive for both investors and visitors.
About half of all international visitors to Dubai come from emerging markets, where currencies have depreciated significantly against the dollar, but even developed markets such as the eurozone and the UK have lost purchasing power in dirham terms.
But a stronger US dollar, to which the dirham is pegged, means that imports are cheaper for consumers and businesses in the UAE, helping to relatively contain inflation in the region.
Even though oil prices have fallen in recent weeks amid mounting global recession fears, they remain well above GCC oil producers’ break-even budgets, allowing governments to continue their domestic investment programs, fueling growth in the UAE and The United Arab Emirates is likely to support the rest of the region next year.
Khatija Haque is Chief Economist and Head of Research at Emirates NBD
Updated September 20, 2022 at 3:30 am