While economic expansion in the Middle East’s financial and transport hub is set to moderate to 3.3% this year, domestic investments — boosted by preparations for hosting the Expo 2020 international trade fair — will drive a “rapid acceleration” to more than 5% by 2020, said Zeine Zeidane, the fund’s mission chief to the United Arab Emirates.
That contrasts with the outlook for Dubai’s oil-reliant neighbors, who have slashed spending in response to the decline in crude prices.
Abu Dhabi, the richest of the UAE’s seven sheikdoms, may be tightening its belt too fast: The IMF expects its economic growth to slow to 1.5% this year from 4.3% in 2015.
Dubai, home to the world’s tallest skyscraper, borrowed tens of billions of dollars to build an economy reliant on trade, transport, finance and construction, attracting global banks such as Goldman Sachs with the allure of tax-free business parks.
After a spell of breakneck growth, the edifice threatened to come crashing down when the global financial crisis pushed the real estate market into a slump and took Dubai to the brink of default.
Authorities have since tightened regulations and repaired the emirate’s public finances.
Dubai’s “diversified economy” is helping it to overcome the negative impact of lower oil prices felt by other regional exporters, Mr Zeidane said.
Its safe-haven status in a region “ridden by conflict”, a weaker dollar, and the strong performance of trading partners such as India are also supporting the economy, he said.
However, the IMF comments come amid concern over Dubai’s property market, with home prices expected to fall by 10% this year because of the spillover from lower oil prices, according to S&P Global Ratings.
A slowdown in the hiring and expansion of companies is also putting pressure on the market, the ratings firm said in a report last month.
Mr Zeidane said the decline was a “welcome correction”, adding that prices are still higher than at the end of 2013.
“I don’t see anything worrisome in terms of macroeconomic and financial stability,” he said.
The IMF expects the UAE’s economy to expand 2.3% this year.
The subdued pace is largely due to the projected slowdown in the capital, Abu Dhabi, home to 6% of global oil reserves and the world’s second-largest sovereign wealth fund.
“Abu Dhabi has delivered strongly on fiscal consolidation in 2015,” Mr Zeidane said.
However, the emirate and the UAE as a whole “have large fiscal buffers that provide them with policy space to adjust to new market conditions, and they should use the fiscal space they have”.