Economists are taking a fresh and more optimistic look at Dubai's prospects in 2011 after a raft of positive measures, including the IMF raising its GDP growth estimate for the emirate.
Trade recovery lifts Dubai outlook
A rebound in global trade, the resolution of Dubai World's debt restructuring and improved investor sentiment are prompting economists to take a fresh look at Dubai's growth prospects.
In October, the IMF raised its GDP growth estimates for the emirate to 0.5 per cent this year and 2 per cent next year.
Other regional economists have made similar moves, reflecting a sea change from the uncertainty that plagued their forecasts at the beginning of the year.
"The growth the UAE economy will witness in 2010 will be principally due to the positive growth witnessed in Abu Dhabi," said John Sfakianakis, the chief economist at Banque Saudi Fransi.
"However, Dubai is reverting back to its fundamental growth base, which is predicated on trade, services, tourism and re-exporting manufacturing."
Mr Sfakianakis is projecting 2 per cent GDP growth for the UAE overall this year, followed by 3.4 per cent next year, approximately in line with the IMF's 2.4 per cent estimate for this year and 3.2 per cent next.
Guarded optimism as the year ends contrasts sharply with the dimmer outlook with which economists began the year.
Dubai World, the Government conglomerate that owns the global ports operator DP World and the developer Nakheel, had announced in November last year that it was seeking a moratorium on debt repayments as it entered talks with banks about an extension on maturities.
While the emirate and its government-linked companies had received US$20billion (Dh73.46bn) in assistance from the Central Bank and the Abu Dhabi Government, many observers questioned the long-term health of the emirate's economy.
Dubai World reached a final pact in September to restructure $24.9bn of debts into new five and eight-year loans. Nakheel is still in talks to settle unpaid bills to contractors, but economists say the once-gloomy outlook has improved considerably since the Dubai Government sold $1.25bn of bonds in late September amid a gradual pickup in trade.
"Dubai's positive growth in 2010 reflects mainly the strong activity in non-real estate sectors, thanks to the strength of trade linkages with Asia and tourism-related activity," said Masood Ahmed, the IMF director for the Middle East.
"The successful resolution of Dubai World debt restructuring and the bond issuance by the Government of Dubai signal a return of confidence in Dubai, which is an important factor for economic recovery."
This month Dubai Customs said non-oil trade through the emirate's ports reached Dh425bn in the first nine months of the year, up 19 per cent compared with the same period last year. That rise came against a backdrop of stronger global trade.
World trade volumes rose 9.8 per cent in the year to the end of September compared with the same period last year on the back of surging emerging market demand after falling by 14.5 per cent during the worst part of the financial crisis, according to an Organisation for Economic Co-operation and Development index.
Simon Williams, HSBC's regional chief economist, said although the trade rebound and general economic improvement had boosted forecasts, it was likely to take most of next year before Dubai and the rest of the UAE returned to robust growth rates last experienced in 2008.
Modest but healthy growth this year and next had to be viewed in the context of contraction during the financial crisis, he said.
"It's not just the non-oil goods numbers showing a pick-up in volumes," he said. "If you look at other parts of the economy - tourism, transport and logistics, whether it's the Jebel Ali port or the Dubai airport - it's not just a matter of the worst having passed. There is growth."
But he added a note of caution. "Even though we have growth, I expect it will be the end of 2011 before the economy is back at the same kind of level as we had at the end of 2008," he said.
The main obstacles for Dubai in the year ahead, economists say, are the still-stagnant property sector and the emirate's debt load. Dubai and its government-linked companies have more than $30bn of debt maturing next year, according to a recent Bank of America Merrill Lynch report. "The challenge is primarily related to the outstanding debt and real estate," said Mr Sfakianakis.
"The first is being dealt with and the second one will take a bit of time to start recovering. Dubai has an excellent infrastructure base, and that is an ace up its sleeve.
"If Dubai sticks to its fundamentals it will do very well," he said. "It has among the best port operators in the world and one of the best managed airlines, and it has its place on the global map."