Dubai's economy grew 3.3% in the year to September 2023

Dubai’s GDP growth slowed to 3.3% in the first nine months of 2023 from 4.5% in January-September 2022. Growth in Q3 2023 was 3.5% y/y, only slightly lower than the 3.6% growth recorded in Q3 2022. The fastest growth year-to-September was in the hospitality sector (11.1% y/y), followed by transport and storage (10.9% y/y) and information and communication (4.4%). Real estate services grew 4.0% in the first three quarters of 2023, up from 2.7% in 2022, while the construction sector grew 1.6% over the period, also a marked pickup from 2022. We expect growth to have accelerated in Q4 2023 and estimate overall 2023 GDP growth at around 3.5-4.0% for Dubai.

The number of greenfield FDI projects into the UAE grew 28% in 2023, while the number of greenfield projects announced in Saudi Arabia rose 63% last year, according to UNCTAD’s Global Investment Trends Monitor. Global FDI inflows in 2023 increased 3% on 2022, despite the much higher interest rate environment, but this was attributed to a few high value projects in Luxembourg and the Netherlands; excluding these countries, global FDI flows declined by -18% last year. There was no detail on the value of the FDI inflows to the GCC countries, and this will likely only be available later this year.

US data was mixed at the end of last week, with existing home sale coming in lower than forecast for December, but consumer sentiment improving at the start of the new year. The preliminary University of Michigan consumer sentiment index rose to 78.8 in January from 69.7 in December, as both the current conditions and expectations components improved. The consumer sentiment index is now at its highest level since July 2021 and the improvement largely reflects lower petrol prices and the rally in equities over the last couple of months. Encouragingly, consumer expectations for long-term inflation have continued to ease, falling to 2.8% in January from 2.9% in December. While still above the inflation target, inflation expectations are heading back towards the pre-Covid trend of around 2.5%. On the housing market front, the recent decline in mortgage rates should support a gradual rebound in existing home sales, which declined -1.0% m/m in December.

In the UK, retail sales declined by a larger than expected -3.2% m/m (-2.4% y/y) in December, although the November reading was revised slightly higher to 1.4% m/m. Excluding autos and fuel, retail sales fell -3.3% m/m and -2.1% y/y, well below forecasts. Weak consumer demand raises the likelihood that the UK slipped into recession last year. Pressure on consumer spending is likely to ease in 2024, as energy prices decline, wages rise in real terms and mortgage rates ease.

Today’s Economic Data and Events

No key data scheduled for release.

Fixed Income

• 10y bond yields rose almost across the board in major markets last week. In the US, strong consumer confidence data on Friday saw the 2y yield rise to the highest level so far this year, closing up 3bp at 4.38%. The 10y yield closed at 4.12% up 18bp w/w.
• In Europe, 10y gilt yields rose 13bp w/w to end the week at 3.92% while 10y bund yields rose 11bp on the week to 2.34%.
• Moody’s cut its outlook on Egypt’s debt to negative last week but reaffirmed the long-term debt rating of Caa1. The ratings agency cited “weak debt metrics and elevated exposure to FX and interest rate risks”, even as talks around greater assistance from the IMF continue.

FX

• The USD index gained last week as markets repriced rate expectations for this year after relatively strong economic data. GBP weakened on Friday after disappointing retail sales data but recovered towards the end of the day. All told, GBP ended the week -0.4% weaker. EUR lost -0.5% against the USD w/w, while JPY depreciated -2.2% w/w.
• Commodity currencies also all weakened against the greenback last week with kiwi the biggest loser, down -2.1% w/w. AUD was down -1.1% w/w and CAD lost just -0.1% w/w.

Equities

• US equities reached a new record high at the end of last week, driven by technology and AI stocks. The Nasdaq 100 gained 2.9% w/w, followed by the S&P 500 which rose 1.3% w/w and the Dow Jones Industrial Average which gained 0.4% w/w. All three indices closed at record highs on Friday.
• European indices closed the week lower for the most part, with FTSE100 down -2.1% w/w while the CAC40 lost -1.3% w/w. China’s equity market also remains under pressure, with Shanghai composite down -1.7% last week and the Hang Seng Index down -5.8% w/w.
• UAE markets closed higher on Friday with the ADXGI up 1.4%, but for the week as a whole, both DFMGI and ADGI lost ground, declining -0.6% and -0.8% respectively.

Commodities

• Both Brent and WTI closed slightly weaker on Friday but gained 0.3% and 1.0% over the week. While escalating tensions are persuading vessels to avoid the Red Sea area in favour of longer routes, supplies may be delayed rather than disrupted or reduced, while concerns about weak demand continue to offset some of the geopolitical risk premium.