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S&P warns Dubai economy to shrink 11%, cuts property giants to junk
[LONDON] S&P Global warned that Dubai's economy was set to shrink 11 per cent this year, as it cut the credit ratings of two of the emirate's biggest property firms to "junk" status.
Dubai, the Middle East's trade and tourism hub, has been hit hard by coronavirus-containment measures and is set for an economic contraction almost four times worse than during the global financial crisis in 2009, S&P said.
"We now expect Dubai's real GDP (gross domestic product) will shrink by about 11 per cent in 2020, compounding the economic slowdown that began in 2015," S&P analysts wrote in a note dated July 9, adding that the emirate's fiscal deficit was expected to balloon to about 4 per cent of GDP this year.
A growth rebound of about 5 per cent is expected next year, but real GDP growth will then slow to 2 per cent through to 2023, which would be half of what it has averaged for the last 10 years.
S&P downgraded Emaar Properties, the United Arab Emirate's largest property firm and the builder of the world's tallest building, Dubai's Burj Khalifa, to a BB+ "junk" rating from an investment grade BBB- score.
It said it expected a 30-40 per cent slump in Emaar's earnings in 2020, a 15-20 per cent dive in overall revenues, while the anticipated recovery next year would be only partial.
DIFC Investments, a unit of the company running Dubai's International Financial Center free zone, was cut to BB+ from BBB- as well.
"We expect Dubai's balance sheet to deteriorate, reducing its ability to provide extraordinary financial support to its related entities," S&P's analysts said.