KHALEEJ TIMES, Saturday, Nov 21, 2020 | Rabi Al Thani 6, 1442
Dubai and Abu Dhabi become more affordable
Emirates:
Dubai and Abu Dhabi became more affordable this year, as the cost of living
declined due to a drop in oil prices and deflationary pressure, says a new
report.
Abu Dhabi moved 10 places down from the 43rd to 53rd position in The Economist
Intelligence Unit’s latest Worldwide Cost of Living Index 2020, while Dubai
slipped from the 58th to 66th position.
“The key reason behind the reduced cost of living in the UAE was the decline in
oil prices. Due to the plunge in global crude prices, the UAE has been facing
deflationary pressures. This has affected the shopping basket of the consumer
and the clothing sector,” said Upasana Dutt, head of Worldwide Cost of Living
and Liveability Index at The Economist Intelligence Unit.
She said that the price trends in the UAE are not likely to see a further
downward trend as oil prices recover moderately, though she expects a still
subdued consumer sentiment in 2021.
Tel Aviv is the most expensive city in the Middle East and North Africa (Mena),
as the cost of living in the Israeli capital jumped in 2020. Tel Aviv rose two
positions to the fifth ranking in the list of most expensive cities. Ranked
27th, Amman was rated the second costliest city in the Mena region, rising 10
positions in EIU’s cost of living index.
Anurag Chaturvedi, CEO at Chartered House, said that Dubai and Abu Dhabi have
seen prices fall because foreign workers left the country due to job losses
after the pandemic.
“With the overall population contracting during the last six months, especially
the Asians who make up the majority of the country’s population, this sent the
demand downward. Also, the reason in decline in rating is mostly because
consumer spending fell sharply in the fashion and luxury segments,” added
Chaturvedi.
James Swanston, economist for the Mena region at Capital Economics, said that
headline inflation in the UAE was already in negative territory before the turn
of the year, having slowed sharply in recent months.
“There are a couple of key factors driving deflation. The first is downturns in
real estate sectors. Property prices and rents in both the UAE have been
declining since the middle of 2016 and the further hit to demand from the
current crisis, combined with more supply coming on stream, has caused rents to
fall even more sharply. As a result, housing inflation in these countries has
slumped,” said Swanston.
“The second is the effects of virus containment measures, which have hit
domestic demand hard and depressed price pressures. Sectors most vulnerable to
containment measures have been those where inflation has fallen the most. For
example, inflation of ‘recreational goods and services’ has plummeted in several
Gulf economies as demand slumped,” he added.
Globally, Zurich, Paris, and Hong Kong are the three most expensive cities in
2020. The other cities in the top 10 ranking are Singapore, Tel Aviv, Osaka,
Geneva, New York, Copenhagen and Los Angeles.
What to expect in
2021
With the global economy unlikely to return to pre-pandemic levels until 2022,
the Economist Intelligence Unit said spending will remain restricted and prices
under downward pressure.
“Many price-conscious consumers will prioritise spending on staples, home
entertainment and faster internet access. Big-ticket items, as well as clothing
and out-of-home recreation, will continue to struggle. Laptop and smartphone
prices will also bear the brunt of tariff wars, as will many items in the food
basket. Imported goods will remain susceptible to currency fluctuations. We
expect online sales to continue to expand their share of total retail sales in
2021. However, even online retailers will struggle to find new sources of
revenue and will rely on price competition to boost volumes,” it added.