The IMF has predicted that the UAE economy will post growth of 3.5% in 2012, although the UAE Central Bank believes that GDP growth may even exceed this figure. Whatever the final number ends up being, it has to be said that growth of 3.5% or above for 2012 is fairly impressive given the continuing global economic gloom which hangs over the majority of developed and developing nations.
Opinion varies as to why the UAE economy continues to grow, particularly given its relatively diverse market.
Unlike its neighbour Abu Dhabi, Dubai’s economy is less reliant on oil. Instead, revenue is driven from real estate, tourism, transport and financial markets.
My personal opinion is that the UAE, along with Qatar, has benefitted from the continued political unrest (Arab Spring) in other Middle Eastern countries. The uncertainty in the surrounding countries has led many to see the UAE as a safe haven. This has meant there has been an upturn in tourism, particularly hotel room bookings and, indeed, many individuals have chosen to move their business operations to the UAE.
The political and social unrest in other Middle East countries during 2011 had an adverse impact on the stock markets, and it led to local brokerages suffering from depressed trading volumes on the main bourses (Abu Dhabi Securities Exchange and Dubai Financial Markets). However, in recent months and weeks, market interest and trading activity has improved, bringing with it increased optimism that the markets are in the initial stages of rebound.
It is worth commenting on real estate in Dubai as this is an area of the UAE economy which had a much publicised fall from grace when the credit crisis hit in 2008-09. It is true that there continues to be oversupply in certain areas of the city, but in other areas – where companies want to be based and individuals want to live – there is almost a situation where demand outstrips supply. This in turn has driven higher property values and an increase in rental yields in these areas.
Putting it simply, in my opinion the Dubai real estate market is currently split into two very distinct markets, one where there is oversupply and one where there is undersupply. Although, as with other global economies, bank lending still continues to be an issue with individuals who do want to buy real estate.
They are struggling to get the funding as the banks continue to try and repair their balance sheets; this approach to lending by the banks needs to change for growth in the real estate sector to continue.
In summary, I share the view of the optimists and believe that the UAE has ridden the global economic downturn relatively well and is now well placed for future economic growth.