23 June 2016

Dubai – Financialization and its Discontents

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After the end of the Breton Woods era, debt levels within the economic system of most countries began to ratchet higher outpacing the equity. This phenomenon is known as the start of ‘financialization’.

Talks of a Dubai debt crunch resurfaced during the oil crash, but appear to be exaggerated when compared to the rest of the world. According to the latest findings, direct Dubai debt is relatively conservative at (55%), with the entire UAE even further down the line at 14%. More developed nations such as UK (89%), United States (104%), and Canada (91%) have surpassed these levels, implying that Dubai has room for further expansionary policy as it continues to roll out mega infrastructural projects in the build up to the World Expo 2020. This stance is contrary to what has been adopted by the West, leading to concerns of the “New Normal” rate of growth.

The real estate sector has generally been the main benefactor of the rise of financialization, absorbing the liquidity/debt in the system. In the US, home loans account for 70% of debt levels.

A closer look into the UAE, reveals that the sectors that have been in direct relation to the financialization process as had higher than average growth rates in terms of Bank credit. Real Estate is the second largest sector by credit activity in the UAE. As home-ownership begins to gather momentum, we opine that the UAE’s debt structure will mimic to that of the United States.

To download the full report click here: http://blog.reidin.com/PublicReports/UAE160624.pdf

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