Growth in Dubai’s non-oil sector slowed last month to its lowest rate since March 2012, as the effect of the low oil price spilt over into reduced tourist activity in the emirate.
The Emirates NBD economic tracker, an informal indicator of growth, offered a headline reading of 53.8, down from 55.5 in June. Any reading above 50.0 indicates that the economy is expanding.
Economic optimism also fell, with the tracker’s future activity index falling just under 10 points from 80.5 to 70.6 – indicating that fewer managers in July expressed positive expectations for the future compared to June.
Tourism was especially badly hit, falling to 50.5, down from 55.3 the previous month.
Occupancy in Dubai’s hotels was down 15.4 per cent in June, the latest month for which figures were available. Revenue per available room, a measure of hotel profits, fell 22.7 per cent to Dh373 per room, while the average daily room rate fell 8.6 per cent to Dh593. The number of hotel rooms has also continued to grow, as hotels add capacity ahead of Expo 2020 – even while occupancy falls.
That is partially seasonal – Dubai's heat keeps tourists away in the summer months, meaning that the period around Ramadan is one of the quietest for hotel operators.
But low oil prices have depressed tourist interest from neighbouring Arabian Gulf nations, analysts said, while sanctions against Iran have halved the number of tourists visiting Dubai from that country since 2010, according to the IMF.
The strong dollar has also made holidaying and buying property in Dubai more expensive. The dollar, to which the dirham is pegged, has risen by about 20 per cent against a basket of major world currencies since the start of 2014, according to data from Bloomberg.
Some of the change is seasonal, with Eid, temperatures regularly in the 40° to 50°C range, and planned summer holidays all eating into productivity in the economy’s service sectors during what, for many office workers, was a hot and sleepy July.
But part of the slowing in growth is probably because of the rout in the oil price, in which Brent crude fell from $100 per barrel in June last year to about $50 per barrel this week, economists said.
While oil accounts for just 1.5 per cent of the emirate’s GDP, according to estimates from Citibank, the low oil price has hit Dubai’s economy indirectly, said William Jackson, senior emerging markets economist at Capital Economics.
Dubai is an open economy that positions itself as a global hub, meaning that slowdowns in its source markets, and especially Gulf Arab states, reduce demand in the emirate, Mr Jackson said.
Gulf states have also lost about $300 billion in earnings from lower hydrocarbon prices, according to the IMF. This has made regional consumers, businesses, and governments worse off.
Low oil prices are very likely to have diminished consumer spending in the region, hurting tourism, real estate and trade receipts, Mr Jackson said. They have probably also led companies to postpone investment decisions in the emirate, he added.
UAE government moves to curb energy subsidies and cut grants are also expected to slow the growth of the country’s economy by 1 per cent each year to 2022, according to the IMF. The economy will grow by 3 per cent this year, it projects.
abouyamourn@thenational.ae
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