Photographer: Razan Alzayani/Bloomberg

Dubai Seen Riding Out Oil Slump Hurting Oil-Rich Neighbors

  • IMF sees rapid acceleration in Dubai's economic growth
  • Abu Dhabi set for slowdown, has room to soften spending cuts

Dubai, the emirate that teetered on the brink of default during the global recession, is bucking the economic slowdown afflicting most of its oil-rich Gulf neighbors, according to the International Monetary Fund.

While economic expansion in the Middle East’s financial and transport hub is set to moderate to 3.3 percent this year, domestic investments -- boosted by preparations for hosting the Expo 2020 international trade fair -- will drive a “rapid acceleration” to more than 5 percent by 2020, said Zeine Zeidane, the fund’s mission chief to the United Arab Emirates.

That contrasts with the outlook for Dubai’s oil-reliant neighbors, who have slashed spending in response to the decline in crude prices. Abu Dhabi, the richest of the U.A.E.’s seven sheikdoms, may be tightening its belt too fast: The IMF expects its economic growth to slow to 1.5 percent this year from 4.3 percent in 2015.

Dubai, home to the world’s tallest skyscraper, borrowed tens of billions of dollars to build an economy reliant on trade, transport, finance and construction, attracting global banks such as Goldman Sachs with the allure of tax-free business parks. After a spell of breakneck growth, the edifice threatened to come crashing down when the global financial crisis pushed the real estate market into a slump and took Dubai to the brink of default. Authorities have since tightened regulations and repaired the emirate’s public finances.

Safe Haven

Dubai’s “diversified economy” is helping it to overcome the negative impact of lower oil prices felt by other regional exporters, Zeidane said in an interview on Monday. Its safe-haven status in a region “ridden by conflict,” a weaker dollar and the strong performance of trading partners such as India are also supporting the economy, he said.

Dubai’s benchmark DFM General Index fell 0.1 percent at the close. The index has outperformed Abu Dhabi and Qatar -- the other two markets in the Gulf included in the MSCI Emerging Market Index.

The IMF comments come amid concern over Dubai’s property market, with home prices expected to fall by 10 percent this year because of the spillover from lower oil prices, according to S&P Global Ratings. A slowdown in the hiring and expansion of companies is also putting pressure on the market, the ratings firm said in a report last month.

‘Welcome Correction’

Zeidane said the decline was a “welcome correction,” adding that prices are still higher than at the end of 2013. “I don’t see anything worrisome in terms of macroeconomic and financial stability,” he said.

The IMF expects the U.A.E.’s economy to expand 2.3 percent this year. The subdued pace is largely due to the projected slowdown in the capital, Abu Dhabi, home to 6 percent of global oil reserves and the world’s second-largest sovereign wealth fund.

“Abu Dhabi has delivered strongly on fiscal consolidation in 2015,” Zeidane said. Both the emirate and the U.A.E. as a whole “have large fiscal buffers that provide them with policy space to adjust to new market conditions, and they should use the fiscal space they have.”

The Abu Dhabi Securities Market General Index Dubai dropped 1.1 percent on Tuesday.

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