Loan restructurings undertaken in 2014 have masked the Emirate’s debt problems in recent years, but these are likely to come back to the fore once the Expo rolls out of town, the latest MENA economics update stated.
“A paucity of data makes tracking economic developments in Dubai difficult. In fact, the Emirate hasn’t produced quarterly GDP figures since Q4 2017. But there are a number of low-level indicators that we can use. For example, while the relationship with the hard data is not perfect, Markit’s Dubai Economy Tracker suggests that growth last year averaged around 3.5%, up from 3.3% over 2017 as a whole.”
It further cited other indicators that show key sectors have struggled recently, such as a slowdown of passenger traffic at Dubai International Airport since the middle of last year, and a deepening of the downturn in the real estate sector.
According to REIDIN, property prices were 9.4% lower in January than a year earlier and are now down by 25% from their peak in 2014. The sector’s struggles appear to reflect a wave of supply coming on stream at the same time that demand is still weak.
“Looking ahead, the property sector is likely to remain in the doldrums. And weakness in the global economy will weigh on Dubai’s manufacturing and logistics sectors. But this should be more than offset by a step-up in preparations for, and the hosting of, the 2020 World Expo. Officials have previously estimated that the Expo will provide a total boost to the economy equal to $38bn, or 33% of GDP.”
Capital Economics concluded that the main risk to the outlook stems from long-standing debt problems. Data from the IMF show that the debt of Dubai’s government-related entities (GREs) – which were at the heart of the Emirate’s crisis in 2009 – amounts to $60bn, equal to 50% of Dubai’s GDP.
“Debt restructurings in 2014 have masked the problems in recent years. But around half of GRE debt is due to mature between now and 2021 and we’ve warned before that the risk of overcapacity after the World Expo means that the GREs could face weaker-than-expected revenues, harming their ability to service these debts.”