The economy of the world’s fifth-largest oil exporter has surged about 50 percent in real terms since 2004 as rallying crude prices allowed state and private investors to pour billions of dollars into projects to deepen non-oil industries. But the tide has turned quickly as slumping oil prices and the global financial meltdown put an end to the property boom in the emirate of Dubai, forcing companies to slash thousands of jobs and cancel dramatic expansion projects.
In an economy where expatriates comprise more than 80 percent of the workforce and are only entitled to reside in the country on employment visas, the knock-on effects of redundancies on the real economy could be severe, analysts said. “Rapid growth in employment has been the key factors driving private consumption upward in recent years but its not going to continue into 2009,” said Simon Williams, a senior economist in Dubai with HSBC.
“The second round effect of job losses are bigger when the workforce is made up of expatriates … Unless they can find new employment expatriates have no choice but to leave and when they go they take their spending, savings and expertise with them.”
Economists are forecasting a sharp downturn in Gulf economic growth next year as OPEC slashes output to buttress oil prices that have fallen more than $ 100 a barrel since July. But the drop in growth in the UAE, a federation of seven emirates led by Abu Dhabi, will be more pronounced as non-oil sectors that account for more than half of gross domestic product gets hammered by a downturn in consumer demand.
Analysts said Dubai property prices would fall 28 percent from a peak earlier this year, while some Dubai retailers said last month sales had fallen 20 percent, even as the world’s biggest mall opened its doors. “Oil price declines have historically had a bigger impact on the UAE,” said Caroline Grady, regional economist at Deutsche Bank, which expects UAE economic growth to slow to just 1.6 percent in 2009. “The non-oil sector could drop severely because the spillover from the liquidity situation is bigger in the UAE than it is in Saudi Arabia because the services industry is more tied to oil money.”
