Citigroup’s chief economist for the Middle East said in a study published on Wednesday Dubai’s exposure to world economy bears downwards risks despite outperforming Abu Dhabi and other major cities in the region.
“Dubai will remain the economic motor of the United Arab Emirates (UAE) in 2013, while the UAE capital Abu Dhabi will lag behind,” Farouk Soussa wrote in the Middle East Macro Monthly report.
The chief economist forecasted that Abu Dhabi’s real GDP will shrink by 0.8% this year, whereas Dubai’s real GDP will increase by 5.1%, thanks to a comeback in the real estate sector, and a pick-up in trade and tourism.
Dubai airport said on Wednesday passenger numbers grew 12.8% year-on-year in September, reaching 4.78 million people.
“We have upgraded our growth projections for Dubai, mainly on the back of a reassessment of the growth prospects in the construction and real estate sectors,” Soussa said.
Dubai has made a steady recovery in the property market through the year, with property prices rising by 20% year-on-year in August 2012, property services company Cluttons said in its review.
The Citigroup analyst said Dubai’s economic recovery and pick-up in the real estate market is unambiguously good news for the investors in the near-term but also warned of the newly emerging downside risks. “We caution against early signs of exuberance, such as the re-emergence of off plan sales and the risks of excessive supply given some of the recently announced projects. Such exuberance could undermine not only the sustainability of the real estate recovery but lead to dislocations in the wider economy as well,” Soussa wrote in the report.
Dubai is witnessing a slight fall in trade as a result of tougher sanctions on Iran imposed by the EU and the US.
“Direct export growth has fallen in 2012 to about 10%. We think this is largely reflecting the impact of tougher sanctions against Iran, one of Dubai’s largest trading partners.”
Dubai also serves as the Middle East’s largest container freight port as well as the region’s busiest airport, making it more vulnerable to global fluctuations than neighbouring Abu Dhabi.
The Citigroup’s regional chief economist forecasted that growth remains bullish for Dubai, which will post a real GDP growth of 5.8% in 2013, while Abu Dhabi will add 3.4% to its real economic output.