03 March 2022 – The National News – www.thenationalnews.com
There has been an increasing shift towards policy measures that deliver on the ‘soft infrastructure’ needed for long-term growth.
Dubai’s economy is well-positioned for its next cycle of growth, marked by an increasing shift from building physical infrastructure to a focus on “soft infrastructure” to further reduce barriers to doing business, according to the emirate’s largest lender.
Trade, domestic manufacturing, e-commerce, a recovering real estate market and a rebounding tourism sector are also essential for the long-term economic potential of the emirate, Emirates NBD said in a research note on Wednesday.
“Dubai’s economy is well positioned to successfully transition on to the next phase of its economic cycle. Capacity uptake will be a key measure of that success,” it said.
“We will see an increasing shift from physical infrastructure build-up to policy measures that hone and deliver on the ‘soft infrastructure’ needed to support the emirate’s long term growth strategies.”
Dubai’s non-oil private sector economy continued to grow in January, albeit at a softer pace, driven by an increase in new orders and boost in output despite Omicron headwinds.
The emirate’s seasonally adjusted IHS Markit Purchasing Managers’ Index reading stood at 52.6 in January, down from 55.3 in December, but the index was above the 50 neutral mark for the 14th consecutive month, indicating a solid upturn in business conditions across the non-oil private sector. A reading above 50 indicates economic expansion, while one below points to a contraction.
The emirate’s economy grew 6.3 per cent year-on-year in the first nine months of 2021, underpinned by a strong rebound in hospitality, trade and real estate sectors, according to preliminary data from the Dubai Statistics Centre.
Emirates NBD estimates Dubai’s economy grew around 5.5 per cent for the full year 2021 — an upward revision from its earlier forecast of 4 per cent. With slower global growth, higher interest rates and a stronger US dollar, the lender expects growth of 4 per cent to 4.5 per cent in 2022.
Inflation in Dubai is expected to accelerate this year to more than 2 per cent, after several years of declining prices driven by falling rents, it said.
Dubai’s investment in trade-enabling infrastructure, such as its seaports and airports, allows it to be a crucial East-West trans-shipment point, similar to trade-based economies like Singapore and Hong Kong, which is important for post-pandemic recovery, it said.
In terms of local manufacturing, Dubai’s policies will “drive the path forward for that sector as a critical part of the emirate’s economic diversification”, the research paper noted.
“The emirate sees that developing its manufacturing sector will be an important element in reducing economic vulnerabilities especially to external shocks such energy price volatility, which is a key goal of economic diversification,” it said.
“It also makes the economy more self-reliant and reduces dependence on imports, which is positive for its long-term trade dynamics.”
An important focus will be on so-called “industries of the future” — including space, biotech, HealthTech and other sectors driven by Fourth Industrial Revolution technologies.
“Regulatory framework will be key,” it said, referring to positive recent policies such as allowing the full foreign ownership of companies and the easing of SME funding.
“Dubai is well positioned to capitalise on those longer-term national industrial plans, particularly given its logistics and overall infrastructure readiness,” the report said.
Dubai’s property market performed well in 2021, with apartment and villa sales prices showing their first yearly increase since 2014.
“We see the improvement in sales and rents of both residential apartments and villas as a sign of stabilisation after a multi-year decline,” the report said.
In the office space, while the omicron variant might dampen some of that recovery, the medium and long-term outlooks “strongly point to a return-to-office agenda, as businesses more comfortably adapt to the dynamics of the virus”.
Higher interest may pose some challenges, although the impact on mortgage demand will be “moderate” at least into the 2022 rate hike cycle.
“An unexpected adverse evolution of the virus, and any related restrictions are headwinds to the market outlook,” the bank said.
Another sector that has rebounded in the emirate is tourism.
“While headwinds from the latest Covid variant continue to cloud the outlook for the global tourism sector, a focus on the correct set of policies that reduce risks and keep the doors open for tourists, in addition to leveraging on its high-quality travel infrastructure, will allow Dubai to chart a determined path to toward normalisation,” Emirates NBD said.