21 January 2016
Dubai: The Lion in Winter
Last year Dubai experienced a 5.1% increase in population coupled with 3.4% in GDP growth. The Dubai government has increased its expenditures by 12% year on year in 2016. The expansive fiscal policy adopted by the government is inline with the current infrastructure boom that is underway. If the momentum continues, Dubai real estate prices will begin to trend upwards, entering the recovery phase of its third cycle.
As oil continues to float near the 30 dollar range, concerns abound that the contractionary effect will lead to a reduction in economic activity. The above chart depicts the contribution of oil revenue for each member. Dubai is the only exception within the GCC states that have a low dependency on oil (6% in 2016), as the city is diversified into other sectors such as tourism, retail, and logistics. It is this diversification of revenues that has allowed the city to adopt an expansionary fiscal policy. Even though foreign money flows will likely be impacted in the face of declining oil prices, the stimulus adopted by the government will cushion any deleterious impact.
This fiscal stance is expected to be sustained during the run up to the World Expo 2020. Although it is likely that foreign inflows will subside in response to falling oil prices, the impact will likely be moderated as the city moves to recalibrate the housing market towards a more affordable option.
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