UAE Economy: Back To The 70s? - Gulf Business
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UAE Economy: Back To The 70s?

UAE Economy: Back To The 70s?

Inflation comes to the UAE. Let’s hope the slowdown does not, writes Peter Cooper, the editor of

Consumers in the UAE don’t need to be told that the price of food is rising. It is quite evident every time you check out of the supermarket these days.

And then there are the many concealed price rises. My lunchtime salad used to be 30 per cent bigger for the same price. Many offerings at restaurants and elsewhere have been downsized though you still pay the same. You get eight pieces where you used to get ten.

This is all food price inflation. It’s a sign that the money printing of the past six years has at last started to appear on the supermarket shelves. Don’t expect it to go away anytime soon.

Once the inflation genie gets going, it is hard to get it back in the bottle.

Of course where inflation has really caught up with people living in the UAE is housing rentals. That is a function of the house price inflation of the past few years, especially the 30 per cent rise last year that was the highest in the world.

Landlords are only behaving as reasonable capitalists in demanding a higher return because they now have more capital tied up in their property than before, and they can only do this if the market allows them.

In Dubai and Abu Dhabi, the supply of residential real estate has lagged behind surging demand. There has been another huge influx of new residents this year, and this has not brought the price falls we expected in the New Year.

If you really wanted to profit from price inflation, rather than suffer from it like the renters of property, then the UAE stock markets are the place to make some money, at least up until the correction in May or June next year.

Yet no one can doubt that there is strength in the economy. Who can fail to notice the traffic queues that make going anywhere distant in the evening not worth it? A million workers in Dubai live in neighboring Sharjah and those numbers seem to be growing month after month. So too are the endless adverts for real estate projects and the launching of giant new schemes.

Still these new real estate projects are gaining less and less traction and each new project dilutes the shrinking pool of available investors. It is the same story in the hotels. Where are the guests? We note a lot of GCC regional visitors to Dubai and Ras Al Khaimah, but not the Europeans.

Also, unless you were living under a rock, you would have noticed how oil prices have slumped 30 per cent in the past few months. The question to ask now is – how much longer is this prosperity going to last?

And the question going forward must be – can a business slowdown still support price rise?

In economics, we learn that lower demand always results in lower prices. However, that was not what I saw as a boy pricing up goods in WH Smith’s in 1979. The 70s were a rotten decade for the global economy and yet we still had something bordering on hyperinflation.

At university, I studied economics and used to ask my far more gifted tutors why we had inflation when the economy seemed pretty depressed. The younger ones were all monetarists then and pointed to the excessive growth in global money supply in the early 70s to cope with the Vietnam War debts, the Arab Oil Embargo of 1973 and the stock market crash of 1974.

What is ever new under the sun?


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