The UAE economy has fared well in the first three quarter of this year, thanks to strong growth in Dubai’s non-oil sectors, Standard Chartered bank said in a report released on Monday.
“The UAE economy performed well so far in 2012, supported in the first three quarters by the strength of Dubai’s non-oil sectors (trade, tourism, and services), a pick-up in spending on non-oil projects in Abu Dhabi, and healthy output in the hydrocarbon sector. Strong oil prices for most of 2012 also played a significant role in driving a healthy economic climate for the UAE, with Abu Dhabi benefiting directly from higher revenues and increased non-oil infrastructure spending, and Dubai’s non-oil sectors benefiting from a regional spending boom,” said Shady Shaher, an analyst at Standard Chartered bank.
“We expect economic conditions in the UAE to remain strong going into the final quarter of the year, supported by higher oil prices approaching the year end. This will support fiscal conditions in Abu Dhabi and underpin the non-oil project spending pipeline. Dubai’s tourism sector will benefit from the emirate’s stability in light of ongoing challenges in the region, and the trade and services sectors will be supported by the relative resilience of the region’s economies in light of strong oil prices and healthy fiscal balance sheets,” Shaher added.
With the $3.4bn Abu Dhabi Midfield Terminal project awarded in early H1-2012, Standard Chartered expects more key non-oil projects to be released towards the end of the year. “Abu Dhabi’s 2012 fiscal position is very strong in our view, with oil prices significantly above the $75-80 breakeven price we estimate for the emirate. This should underpin the recovery in non-oil government-driven projects, especially in infrastructure development for the remainder of this year.”
Dubai’s trade sector resilient
Dubai’s tourism sector is performing well. First-half of 2012 data indicated a continuation of 2011’s strong momentum. In H1, 28 million passengers passed through the Dubai airport, a 13.7 per cent rise y/y. For the full year, a record 56.5m passengers are expected.
Dubai hotel guests from the GCC increased by 45 per cent y/y in 2011, as Dubai’s stability attracted guests from other countries facing regional challenges. “We expect GCC tourists to be one of the largest growth segments into the year end. Dubai Airports released H1-2012 figures showing that the GCC region experienced the highest increase in total passenger numbers, up by 180,397 passengers in H1. Saudi Arabia was by far the largest market for tourists into Dubai in H1-2012. In 2012 we expect total tourist arrivals into Dubai to grow by 11 per cent y/y to 10m, with hotel occupancy rates likely to improve to 87 per cent (from our estimate of 81 per cent in 2011). A growing stock of hotel rooms should cap room rates, ensuring a steady flow of tourists to the emirate,” analyst said.
Dubai’s has a strong logistics and trade infrastructure from ports to free zones and it is benefiting from the regional infrastructure boom that is driving demand for goods. Dubai’s key re-export markets are now increasingly within the GCC region, and this is largely a good thing, given that Standard Chartered sees positive dynamics in the region over the near to medium term, with strong levels of state spending, underpinned by healthy fiscal positions and strong oil prices.
In 2011 re-exports (outside free zones) to GCC countries totalled $6 billion, with the five GCC states among Dubai’s top 13 trade partners. Further, Dubai has been exploring new footprint markets. Iraq and Afghanistan are now its third and seventh largest trade partners, respectively, with total re-exports (non-free zone) of $4bn, which Standard Chartered believes are largely reconstruction related. Note that less than 10 years ago neither country was close to that level of importance as trade partners.
The logistics sector’s performance so far in 2012 has been resilient in light of challenging global trade currents. Dubai ports operator DP World indicated that its UAE portfolio handled 6.6mn TEU in the first six months of the year, up 6.3 per cent versus the same period last year. This is a sign that the sector continues to outperform in the region. For the remainder of the year the trade sector to benefit from the flow of capital goods required to build the region’s infrastructure. “We expect it to grow by a more subdued 8-10 per cent in 2012-13 versus 2011’s 21 per cent growth rate (which was largely base-effect driven). This will be supported in large part by continued strength in regional spending programmes,” Shaher said in the report.