UAE real estate, tourism to feel Brexit impact: analysts

The UK’s decision to leave the European Union (EU) is seen to affect the United Arab Emirates’ economy in the long-term, with its key non-oil sectors likely to see the most impact, regional analysts have told Argaam.

Global markets tanked on Friday following the Brexit vote as the British pound sank to a 30-year low, while the US dollar logged its biggest one-day gain in decades.

Further declines in the pound are likely over the near-term, according to Bank of America Merrill Lynch, which said in a note that a move towards 1.30 in GBP/USD cannot be ruled out.

These types of currency fluctuations are expected to further complicate things for Gulf economies and the UAE in particular, given its close trade ties with the UK, as well as its peg to the US dollar.

“The strong USD has also contributed to the fall in Dubai’s property prices by reducing affordability for foreigners,” Monica Malik, chief economist at Abu Dhabi Commercial Bank said in a note. “We see a weaker private consumption and investment outlook in the UAE following Brexit.”

A stronger dollar and widespread uncertainty in the aftermath of Brexit may also add downward pressure to oil prices, which may potentially hurt growth in other areas.

“With the fall in oil prices and elevated global market uncertainties, foreign borrowing rates for GCC entities will likely increase. This will place more pressure on domestic borrowing and potentially push up interbank rates further,” Malik added.

Lower oil prices and a weaker pound may also have a knock on the UAE’s tourism sector, Yong Wei Lee, Head of MENA Equities at Emirates NBD told Argaam.

“A weak British pound will affect tourist inflow from the UK and makes it more expensive for potential British buyers of Dubai properties,” Lee explained, adding that market sentiment would be affected if this scenario carries on.

In the short-term, however, volatility within global and Gulf markets is likely to continue until investors get more clarity on the UK’s exit plan and assess the impact accordingly.

"We expect regional markets to exhibit volatility from Brexit tremors in the coming week especially with the reduced volumes during Ramadan,” Dubai-based investment firm Al Masah Capital said in a recent report.

“Volatility is not necessarily a bad thing and can be a friend to the long term investor as it affords them the ability to purchase undervalued securities." 

Write to Joumana Saad at joumana.saad@argaamplus.com