Dubai’s economy is headed for the biggest expansion in five years as the Persian Gulf business hub benefits from tourism and trade.
The emirate’s gross domestic product grew 4.1 percent in the first half to 161.5 billion dirhams ($44 billion), the Dubai Statistics Center said in an e-mailed statement today, on track to reach the government’s forecast of 5 percent for the year. The hotel and restaurant industries grew more than 16 percent, while manufacturing expanded 10.4 percent. The emirate’s economy grew 18.1 percent in 2007, according to government data.
“We have seen a continued improvement in consumption environment, both linked to domestic consumption and tourism,” Monica Malik, Dubai-based chief economist at EFG-Hermes who forecasts 2012 GDP growth at 4 percent, said by telephone. “Moreover, we are seeing signs of a tentative pickup in investments, which is a relatively newer development.”
Dubai’s ruler on Nov. 24 announced plans for a development boasting the world’s biggest shopping mall and gardens larger than London’s Hyde Park, as the emirate revives property projects on hold since the start of the global financial crisis. The Dubai Financial Market General Index has climbed 17 percent this year and is headed for the biggest gain since 2007.
The sheikhdom, the second-biggest in the United Arab Emirates after Abu Dhabi, saw its economy collapse after the crisis tightened credit, causing property prices to plummet. Real-estate and business services grew 1.5 percent in the first half of this year.
Dubai racked up $113 billion of debt transforming itself into a tourism and commercial hub, according to the International Monetary Fund. The emirate has $9.8 billion of debt maturing next year and $32 billion in 2014, Bank of America Merrill Lynch said last year. Its economy contracted 2.4 percent in 2009, the year it almost defaulted on debt, before expanding 2.8 percent in 2010 and 3.4 percent the following year.
“The current facilities available in Dubai need to be scaled up in line with the future ambitions for the city,” Sheikh Mohammed Bin Rashid Al Maktoum said in a statement on Nov. 24. “We have to start work immediately” on the project.
A construction boom in the emirate, which opened its property market to foreign buyers in 2002, led to several large projects including the world’s tallest tower and man-made islands off the coast. Work on two of three palm-shaped residential islands was interrupted as the bonanza turned to bust in the third quarter of 2008.
“The improvement in the fiscal position and access to external funding has been vital for supporting the investment activity,” Malik said. “Moreover, the pickup in house prices is supporting some real-estate developments that were earlier stalled.”
Dubai sold $1.25 billion of Islamic dollar bonds in April, its first debt offering in almost a year. The yield on its 4.9 percent sukuk due May 2017 has fallen 146 basis points to 3.38 percent since it began trading. The average cost of a mid-range villa in Dubai last month rose to the highest since January 2009, according to data compiled by Cluttons LLC.
The cost of insuring Dubai’s debt against default has declined 202 basis points this year to 238 on Nov. 23, according to data provider CMA. That’s 739 basis points less than its peak in February 2009, the data show.
To contact the reporter on this story: Dana El Baltaji in Dubai at firstname.lastname@example.org
To contact the editor responsible for this story: Andrew J. Barden at email@example.com