Dubai’s economy shrank 2.3% in 1H as the war hit trade and transport

Dubai’s real GDP contracted 2.3% y-o-y in 1H, closing out the six-month period at AED 473 bn, state news agency Wam reports, citing data from the Dubai Data and Statistics Establishment. Nominal GDP, however — which doesn’t adjust for inflation — rose 0.2% y-o-y.

The damage was concentrated in the sectors that make Dubai a hub. Wholesale and retail trade, the largest slice of the economy at 20.5%, fell 6% in real terms to AED 96.9 bn. Officials partly blamed inflation, noting that the sector still grew 2% at current prices. Transport and storage dropped 7.4% to AED 50.6 bn, and real estate slipped 2.5% at constant prices.

Dubai underperformed the wider UAE, where real GDP grew 0.4% in 1H on the back of a strong first quarter before contracting 2.1% in 2Q. Dubai grew 2.4% in 1Q, which means its 2Q contraction was deeper than the half-year figure suggests. It’s the first contraction Dubai has reported since the pandemic, though the figures come from a recalibrated series that roughly doubles earlier estimates of the economy’s size, so they aren’t directly comparable with numbers published before this year.

Even the first quarter showed signs of slowing. The emirate posted GDP growth in 1Q at 2.4% y-o-y; however, that was already a dip from the 4% recorded for the same quarter the year before.

Finance kept growing through it. Financial and ins. activities expanded 8.8% to AED 65.9 bn, lifting their share of GDP to 14% from 12.5% a year earlier. Health (+14.3%), utilities (+5.4%), information and communication (+2.7%), and construction (+2.4%) also grew, but together they weren’t enough to offset the losses.

REMEMBER- Financial firms have continued setting up shop in Dubai despite the regional instability. However, analysts have flagged that other more war-exposed sectors that generate substantial revenue for the emirate, such as tourism, would take a hit from the war. Still, Dubai has already moved to cushion the blow, in particular to its private sector, with stimulus packages to support business activity.

What’s next: S&P forecast in June that Dubai’s economy would contract c. 2.5% this year, putting 1H roughly in line, and said a tourism recovery depends on a lasting end to the war.