Travel spending is outpacing all other global markets. Shoppers are splashing on luxury goods. Demand for cosmetic surgery, the corners of the economy specializing in nice-to-have luxuries often the first to get cut when times get tough, is also high.
Three years into the recovery, by most accounts, the GCC economy was supposed to be deep in recession, like everywhere else in the world, but it’s not yet.
The economy is, seemingly, still strong. Inflation is coming down – it is between 2.1% and 3.3% and will fall lower in 2024; unemployment is staying low. Things are not cratering.
“The economists with crystal balls seem to have got it wrong. The doom and gloom they’ve spoken of hasn’t appeared in the way they said it would,” says Ashish Panjabi, COO of Jacky’s Group.
“Even in countries that saw large currency devaluations in the last year, the inflation rate in many of those countries seems to be stabilizing,” adds Panjabi.
The unemployment rate in Saudi Arabia decreased to 5.1% and about 3% in the UAE. With inflation edging down and hiring rising, businesses and families are still spending.
“In their last earnings report, Majid Al Futtaim Group said the Mall of the Emirates had its highest footfall ever, and overall mall traffic grew by 12%. Sales grew by 7%,” says Panjabi.
In May, Dubai’s Emirates Group said financial year 2022-23 had been its most profitable so far, reporting an annual profit of $3 billion and a group revenue increase of 81% to $33 billion.
Recent Dubai Health Authority figures showed the number of people seeking cosmetic procedures has risen sharply since the onset of Covid-19.
Crowds continue to spend millions to see concerts in Saudi Arabia and the UAE, from Grammy Award-winning pop-rock band Imagine Dragons and Australian rapper Iggy Azalea to legendary American band KISS and Jethro Tull. Cruise bookings are at all-time highs.
Cars are flying off lots. Geely sold more than 1,000 vehicles six weeks after it opened its Dubai showroom in May. In early September, a new luxury car showroom in Dubai’s Sheikh Zayed Road sold five luxury cars – between $136,130 to $190,580 – within a week of opening.
Even the hospitality industry is experiencing positive growth trends.
“In the first quarter, compared to the first quarter of 2022, Hyatt witnessed a 256% growth in revenue across managed and franchised hotels, led by favorable results in the Middle East,” says Heidi Kunkel, Senior Vice President Commercial Services for Europe, Africa and the Middle East, Hyatt.
“Business and leisure travel demand is showing favorable results across the Middle East, and we continue to experience encouraging booking trends across both travel segments,” Kunkel adds.
Many business owners began bracing for the worst this year — expecting to slash budgets and lay off employees, but appear to have sidestepped the worst fears of a recession.
Despite earlier precautions, such as cutbacks in marketing or delayed investments, many say they’ve been pleasantly surprised that people are continuing to spend.
“We are 22% above target for the year in the UAE across both channels – B2C and B2B,” says Erika Doyle, founder of Drink Dry, a premium drinks marketplace.
Pet grooming services are also seeing increased demand. “The market is becoming more competitive, with new players starting operations every month, offering services both in shops and mobile van services,” says Amr Hazem, CEO of The Petshop. The company was acquired by Aliph Capital, a private equity firm, this year.
HIGH BUSINESS CONFIDENCE
Saudi Arabia’s economy grew by 1.2% in the second quarter of this year, faster than the initial estimates, mostly driven by a sharp expansion in the non-oil sector, which grew by 6.1% annually.
In the UAE, business confidence is at its highest since before the pandemic. According to the latest seasonally adjusted S&P Global UAE Purchasing Managers’ Index, there are positive signals, including uplifts in input purchases, inventory building, job creation, and improving supply chain conditions.
The pace of expansion in new orders remained healthy, driven in part by greater household spending, and increased customer numbers.
According to official figures, the neighboring Qatari economy, boosted by the successful hosting of the FIFA World Cup, achieved a real growth rate of 2.7% during the first quarter of the current year.
Most GCC economies are expected to enjoy double-digit current account surpluses, despite worries about slower oil production.
Countries in the bloc have already shown intent to reduce their dependence on fossil fuels – their major source of income – as the world transitions towards green energy.
To bolster economic growth through non-oil revenues, Saudi Arabia, UAE, and Qatar have hosted major sporting events and exhibitions and started building large infrastructure projects to attract tourists. Saudi Arabia continues investing massively in mega projects like the $500 billion NEOM and the Red Sea Project.
Tourism is booming in the region. By the end of this year, it is expected to contribute $49 billion to the UAE economy. The UAE’s hotel room inventory is expected to continue to increase this year, with 9,200 new rooms to be added in Dubai alone amid a rebound in the country’s tourism sector.
GROWTH AND EXPANSION
Business owners say demand remains brisk, and some are hiring more to keep up.
“Despite rising interest rates, residential property sales have grown even though mortgage rates are higher. This directly impacts our business as we find more people buying electronics and home appliances,” says Panjabi.
Doyle is expanding her team. “We have full confidence in the growth of the non-alcoholic sector, and we will continue investing in people and resources needed.”
The year is also shaping to be a period of unexpected expansion. In key growth markets like Saudi Arabia, Hyatt is set to triple its footprint in the next five years.
“The Middle East region continues to showcase the resilience of the travel industry, and we are confident that the remainder of 2023 will continue to witness favorable trends across business and leisure travel,” says Kunkel.
Meanwhile, Petshop plans to open new stores. “We’re also expanding our product and service offerings. We had a positive impact on our performance in 2023, and we expect even more growth going forward,” says Hazem.
In the UAE, restaurants are fully booked, and hotels enjoy unprecedented occupancy levels, so there is every reason to expect growth in the year’s final quarter, says Doyle.
“Q4 is the biggest quarter of the year, and we expect to double our annual revenue achieved to date.”
In UAE’s capital city, which constitutes about half the Emirate’s industrial sector, 27 new manufacturing operations got underway, beating an internal target of 18. Abu Dhabi’s Department of Economic Development wants 90 more in 2023 and another 100 by 2024.
As the good news piles up, there is a sense that the economy could still sour — even if not as soon or as dramatically as previously feared.
The World Bank said in its Gulf Economic Update report that economies in the GCC region will grow by 2.5% in 2023 before picking up to 3.2% in 2024.
“The weaker performance is driven primarily by lower hydrocarbon gross domestic product and the global economic slowdown,” the Washington-based lender said.
Even the London-based data and analytics firm GlobalData has lowered its 2023 growth projection for the MEA region to 2.8% from its March 2023 estimate of 3.17%. The revision was driven by a fall in oil prices and lower crude production.
“The sentiment remains positive, and we’ve continued to invest. Apart from the workforce, we’ve been investing in new systems, better logistics facilities, and renovating existing outlets. The appetite for investment in technology products isn’t slowing down,” says Panjabi.
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