S&P Global Ratings estimates the emirate's GDP will shrink about 11 percent this year
Dubai’s economy will likely suffer a “significant shock” this year as the coronavirus pandemic and its consequences weigh on most sectors in the Middle East’s business hub, according to S&P Global Ratings.
S&P also stripped the city’s best-known real-estate developer of its investment-grade credit rating. Gross domestic product in the emirate will shrink about 11 percent this year, and will only recover to last year’s nominal growth levels in 2022, S&P said in a statement.
S&P cut Emaar Properties and its subsidiary Emaar Malls from BBB-, the lowest investment grade, to BB+ and signalled that more downgrades may come. DIFC Investments Ltd. was also cut to BB+, though S&P’s outlook on its rating is stable.
“We now expect to see international demand for Dubai’s property to be subdued, and the fall in residential prices to be steeper than we had expected, lingering well into 2021,” S&P analysts including Timucin Engin wrote.
Dubai relies heavily on tourism and real estate - two of the sectors most hard-hit by the pandemic. The city, part of the United Arab Emirates federation, now faces a deeper economic contraction than the decline it experienced during 2009.
Business conditions showed signs of picking up in June as the UAE began to reopen its economy, but global travel restrictions, “including suspension of most international passenger flights and social distancing constraints, will continue to significantly weigh on Dubai’s tourism and hospitality sectors”, S&P said.
S&P expects Dubai’s economy to rebound about five percent in 2021, but then predicts growth will slow to two percent through 2023 amid subdued demand in the Gulf region and relatively low oil prices.