Analysis: Dire repercussions threatening the UAE economy after a record

The UAE economy faces dire repercussions after a record contraction in 2020 due to its government deficit and widespread corruption.

Data from the UAE Central Bank showed that the country’s economy contracted by 5.8 per cent in 2020, amid expectations of limited growth for the current year.

The UAE economy has been severely affected by the drop in oil prices and the Corona pandemic’s repercussions on essential sectors, most notably tourism and real estate.

The UAE central bank said it expects non-oil GDP to grow by 3.6 per cent this year.

However, this depends on the stability of oil output unchanged due to the reductions agreed upon within the “OPEC +” alliance.

The bank counts on global activities in the UAE and the Gulf region, such as the Expo Dubai, as the UAE economy returns to its pre-pandemic growth rate.

Expo Dubai was supposed to start in October 2020, but it was postponed for a year due to the Coronavirus outbreak.

The exhibition is scheduled to open on the new date next October and will continue until March 2022.

A comprehensive crisis is escalating for the UAE economy, with massive losses for banks and a record drop in real estate prices in light of chronic government failure and corruption.

Profits of banks listed in the UAE financial markets decreased during the year 2020 by 44% annually amid shrinking revenues and increasing allocations to counter the Coronavirus’s repercussions.

Based on the disclosures of the banks listed on the Abu Dhabi and Dubai stock exchanges, it appears that the profits of 19 Emirati banks have decreased to 25.3 billion dirhams (6.9 billion dollars).

This is after bank profits amounted to 45.2 billion dirhams ($12.32 billion) in the same period in 2019.

The number of banks listed on the UAE stock exchanges is 19, distributed as seven on the Dubai Stock Exchange and 12 on the Abu Dhabi Market.

The report monitored the decline in profits of banks listed on the Dubai market by 60% to 9.6 billion dirhams (2.61 billion dollars), amid a decrease in the earnings of 4 banks and a loss of 3 others during the year.

Emirates NBD, the largest bank in Dubai, recorded the most significant decline in profits, by 52%, to 6.95 billion dirhams ($1.89 billion).

On the other hand, Mashreq Bank recorded the most significant loss in the Dubai market’s banking sector, with a value of 1.27 billion dirhams ($345 million).

In the Abu Dhabi capital market, listed banks’ profits shrank by 25% to 15.74 billion dirhams ($ 4.28 billion).

Three banks recorded profit growth, compared to a loss of 4 banks and a decline in profits of 5.

First Abu Dhabi Bank (the largest UAE bank in terms of assets) topped the highest profitability list over the past year with a value of 10.55 billion dirhams ($2.87 billion). Still, it recorded an annual decline in profits by 15.7%.

Forty-eight banks operate in the UAE, including 22 local and 26 foreigners, serving more than 9.5 million citizens and residents.

Meanwhile, Standard & Poor’s, the US global credit rating agency, confirms that Dubai’s real estate market, primarily residential and office spaces, may drop to a record low in 2022, after overcoming a challenging year in 2020.

Economic growth in the UAE contracted by 11% in a country suffering the most significant population decline in the Gulf region.

“The market suffered from an imbalance in supply and demand before the emergence of the Coronavirus, which made the situation worse,” said an analyst at Standard & Poor’s Sapna Jagtiani.

Jagtiani expects that the supply will be low in the housing sector this year and that mortgage rates will remain low, encouraging residents to buy real estate rather than rent it.

It is also expected, according to Jagtiani, that the high vaccination rates in the Emirates, of which Dubai is a part, will help to return to offices, which may lead to an increase in the prices of office space.

Projections also indicate that tourism activity in Dubai will be “fragile” in 2021.

The abundance of real estate and faltering demand in Dubai led to a drop in prices by more than a third since the market reached its peak about seven years ago before the Coronavirus pandemic exacerbated this decline.

Real estate broker JLL said in January that Dubai property developers are likely to continue the high supply momentum this year, an increase that means another two years of lower prices.

In this context, Damac Real Estate, one of the largest real estate developers in Dubai, said last month that it would take at least a year to two years for the real estate market to emerge from the downturn.

Meanwhile, Standard & Poor’s confirmed that Dubai suffered the most considerable population decline in the Gulf region last year. At the same time, its gross domestic product shrank by about 11%, according to agency estimates.