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Khatija Haque - Head of Research & Chief Economist
Published Date: 28 June 2022
Dubai’s economy grew 6.2% y/y in 2021, according to preliminary estimates from the Dubai Statistics Centre, faster than the rate of recovery we had expected last year. The economy had contracted by -11.8% in 2020 when the most stringent Covid-19 restrictions had been in place. As a result, the Dubai economy was still around 6% smaller at the end of last year than at the end of 2019.
The fastest growing sector in 2021 was accommodation & food services (hospitality), which rebounded 38.2% y/y as travel and other restrictions were eased. This was followed by real estate activities, which grew 20.1% y/y even as construction output contracted for the second year in a row. This reflects the sharp increase in the number of real estate transactions last year, which underpinned growth in the associated services industries.
The biggest sector of the economy, wholesale & retail trade which accounts for about a quarter of Dubai’s GDP, grew 6.2% in 2021. Output in the wholesale & retail trade sector was still around 10% below 2019 levels at the end of last year. Growth rates of other key sectors are in the table below.
Source: Haver Analytics, Emirates NBD Research
The Statistics Centre also released Q1 2022 GDP data which showed the economy grew a robust 5.9% y/y at the start of this year. Transport & storage and hospitality both posted strong double-digit growth of 40% and 47% y/y respectively off the low base of Q1 2021 when many travel restrictions were still in place. However, real estate services growth appears to have slowed sharply to 1.3% y/y in the first quarter of 2022.
We think GDP growth will have started to normalize in Q2 2022, and we expect growth to slow in the second half of this year due to base effects as well as higher borrowing costs and inflation, which are likely to weigh on domestic consumption. With the global growth outlook deteriorating, international trade is likely to slow in H2 as well. A stronger USD could weigh on tourism in Dubai, but international passenger traffic is expected to continue to recover from the pandemic lows over the next two years. Finally, the fiscal surpluses in the GCC and Dubai’s reputation as a safe-haven during periods of geopolitical turmoil are likely to support investment and activity in the emirate in the coming months.
Overall, we remain confident that Dubai will continue its post-pandemic recovery this year, even as global growth slows and monetary policy is tightened. However, we expect GDP growth to slow to 4.5% this year from the 6.2% recorded in 2021.
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