Over the last few months, there has been a litany of fake news and concocted numbers that analysts and bloggers have used to adversely exaggerate the economic situation in Dubai. This has led to unnecessary fear and uncertainty within the investor community. However, the data seems to indicate a rebound in economic activity is on the anvil. While real estate (and equity) asset prices have been sluggish for the better part of three years, it appears as if the pick-up in economic activity in response to stimulus measures is setting the stage for a rebound.

An analysis of Dubai's gross domestic product (GDP) growth rates reveals that since 2014, the economy has been growing at a slower pace, which coincides with the crash of oil prices and the rise of geopolitical tensions in the region. Last year, Dubai had the slowest growth rate it has had in the last seven years and is expected to remain constant in 2018, although it is becoming apparent that the forecasts are now tilting towards the upside. Projections for 2019 by the International Monetary Fund and Oxford Economics all reveal an uptick in the economy, which reflect the positive steps taken by the government in the form of fiscal stimulus and regulation change this year.

In 2018, the Dubai government announced the largest public budget ever (20 per cent increases year on year), while achieving an operating surplus of Dh2.5 billion. The major beneficiary of the budget has been the infrastructure segment, accounting for 21 per cent of the total government expenditure. This move is in line with Dubai's Strategic Plan for 2021 as it gears up to host the World Expo event in about 24 months.

The UAE and other Arab countries have historically had a high dependency on oil as a major source of government revenue. Since the crash in oil prices, various countries have cut budget spend, causing economic growth to slow down, while simultaneously concentrating on non-oil based revenue. However, the recent resurgence of oil prices in the last 18 months will cause the region to get an overall boost as most countries are likely to expand their budgets.

Dubai's government has not been reliant on oil as a source of revenue (accounting for circa 5 per cent of the budget). However, the uptick from the region will have a multiplier effect on Dubai. It is important to remember that this variable has had an asymmetric effect on the economy, with the oil downturn impacting growth adversely, while the pick-up has not resulted in the gains that analysts had called for. In reality, correlation analysis suggests that Dubai's growth has been least effected by movements of oil prices in the long term, and that the fresh slew of incentives that have been offered, alongside the fiscal stimulus is likely to stimulate growth.

A more grassroots analysis reveals that business activity is on the rise as well. A look into the net licences of onshore companies shows an increase of 6 per cent in 2017, after a minor fall of 2 per cent in 2016. This increase attests to the improvement of business conditions across the emirate.

In addition, a recent study by the Dubai Economic Department revealed that 47 per cent of the local workforce is that of small and medium-sized businesses, which has increased by 7 per cent from 2009 to 2016. The SME sector plays an important role in the national development of any country. The Dubai SME workforce structure is in line with international countries such as the United States and New Zealand. Incentives that have been announced such as the waiver of fees and penalties, as well as the refund of visa deposits are targeted mostly for this segment, and it is here that we expect there to be a strong revival of growth, stimulating the economy.

Given the continued sustained stimulus that the government of Dubai has adopted, we opine that real estate prices are likely to enter an inflection point sometime during the year as fiscal policy acts as a fillip to both consumer spending and aid in the recovery of asset prices.

The writer is head of IR and research at Global Capital Partners. Views expressed are his own and do not reflect the newspaper's policy.

 

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