Outlook improves for Dubai’s trade sector as tourism and retail face challenges
The UAE economy is expected to grow at a relatively healthy rate of 3.8 per cent in 2015, lower than the 2014 growth of 4.5 per cent, according to Standard Chartered’ s Global Focus report.
While Dubai’s tourism and retail sectors are expected to face a more challenging environment, the outlook for the its trade sector dynamics is improving as the hub for 55 per cent of the region’s trade, Dubai benefits from ongoing trade flows as well as GCC countries continue to spend on their economies.
“We now estimate that Dubai’s trade sector will grow by a more robust 7 per cent in 2015 (against our earlier projections of 4.5 per cent) as improving regional trade dynamics support trade flows through Dubai ports,” said Shady Shaher, an economist with Standard Chartered.
A combination of factors has impacted the outlook for Dubai’s tourism and associated retail sectors. A slump in the number of Russian tourists and a drop in their spending has impacted both tourism and retail business. Data from Network International, a payments solutions provider shows that retail spending by Russians fell 52 per cent in the first quarter of this year.
“We believe the growth rate for tourism and associated retail sectors will drop to 4.2 per cent this year from almost 8.5 per cent in 2014,” said Shaher.
The UAE’s hydrocarbon sector is largely centred in Abu Dhabi which controls 95 per cent of crude production and exports. Weaker oil prices mean reduced oil receipts contributing to weaker nominal growth impacting spending. But Opec data shows that the UAE is now producing almost 2.9 million barrels of oil per day against Standard Chartered’s earlier forecast of 2.6 million barrels a day.
“Our outlook for Abu Dhabi government spending in 2015 has shifted. We now expect it to be maintained at or around similar levels of 2014,” said Shaher.
Latest inflation data shows Dubai’s inflation rose to 4.2 per cent in April, near its five-year high while inflation in Abu Dhabi was at a 6-year high of 5.3 per cent. “Inflation is a key risk for 2015 growth. We view inflation numbers as a lagging indicator for cost of housing, which were slow to capture rising rents in 2015. We believe both rents and house prices to moderate this year,” he said.