The Coronavirus pandemic has brought community lockdowns and quarantines into a necessity across the globe. These precautionary measures disrupted economic activities suspending business operations indefinitely, resulting in massive retrenchments and unemployed citizens around the world. At the time of writing this article, the COVID-19 outbreak is somewhat controlled in the UAE with lowering case rates, lifting curfew hours and re-opening businesses to the public.
With approximately four months into the state of lockdown, economic contraction is inevitable. And as the saying “History repeats itself” goes, there is probably a thing or two we can learn from the world’s past epidemics and disasters. While global economic downturns are felt due to the current situation, history shows us how world economies were able to recover after pandemics and recessions. Let’s take a look back in history, understand the impacts of global recessions and remind us that better days are ahead.
The Great Depression
The Great Depression has been dubbed as the worst economic downturn in the industrialized world lasting from 1929 to 1939. It began in the stock market crash on October 1929 sending Wall Street investors into panic. This resulted a steep decline in consumer spending and drop in investment. Industrial output declined and unemployment rates soared, displacing about 15 million Americans.
The Real Estate sector was also not spared, plummeting prices by 67% at the end of 1932. Homeowners were left unable to sell their properties because values declined drastically. The 10-year financial crisis ended when US President Franklin D. Roosevelt implemented a new economic policy. The New Deal advocated Government spending to boost consumer demand. This stimulated the economy as it created jobs and provided unemployment insurance.
During these times, the Middle East relied heavily on agriculture. The countries in the Middle East struggled with their major exports garnering few profits in the world economy such as cotton, silk, tobacco and wheat. Although the Middle East was generally buoyant during the Great Depression, it paved the way for the development of their local industry. Economies particularly in the Middle East were able to reorient themselves into local manufacturing.
The Great Recession
Another economic downturn that has happened in recent history is the Great Recession which began in December 2007 and lasted until June 2009. It started when a credit crisis broke out in 2007 and affected world financial market, the banking and real estate industries. The US housing market collapsed which was due to high housing prices and relaxed lending practices.
The crisis lead to worldwide mortgage foreclosures and millions of people losing their jobs and homes. The Great Recession is the longest economic decline since the 1930s and declared 8.7 million job loss in the US alone.
The UAE was also hit by the 2008 financial crisis which began in the property market breakdown and spread to the banking sector. The government levies only few taxes and UAE authorities tried to counter the slowing growth and decline in international credit by increasing spending and cash flow in the banking sector, especially in Dubai, which lacked sufficient funds to meet its debt obligations. Dubai was in a real estate boom and the recession began with burst of the real estate bubble. The increase in housing and property supply caused a very high price than the demand.
However, thanks to the authorities for preventing the economy to drop into a depression. The UAE Central Bank and Abu Dhabi-based banks bought the largest shares and created confidence-building measures. The government liquidity facility increased the confidence of investors and placed Dubai in a positive position after a period of turbulence. In May 2010, Dubai announced its final restructuring of its debt and 81 percent of Dubai investors intend to maintain investment in the Emirate.
The MERS-CoV Outbreak
The Middle East Respiratory Syndrome (MERS) is also an appropriate example. The MERS-CoV is a novel coronavirus that was first identified in Saudi Arabia in 2012. Approximately 35 percent of reported patients affected by the virus have died. The largest healthcare outbreaks in the Middle East occurred in Saudi Arabia and United Arab Emirates.
The virus strain was particularly found in dromedary camels and brought precautionary measures to travelers from the Arabian Peninsula. Although MERS represents a very low risk to the general public in this country, the UAE has notified WHO (World Health Organization) of one laboratory-confirmed case of the MERS-CoV infection in October 2019. This is the first case of infection reported in the UAE since May 2018 and since the outbreak in 2012.
During the MERS-Cov outbreak, the the UAE has reported 88 cases and 12 associated deaths. Noting that the outbreak had a quite short timeline, this seems a reliable reason why the economy was not severely hit. Thus, the outbreak did not significantly affect any of the sectors.
The COVID-19 Pandemic
The COVID-19 is undoubtedly one of the worst pandemics in the world, changing the course of our history. Within the first few months of 2020, the novel coronavirus has rapidly spread from the province of Wuhan in China across the globe. As of now, COVID-19 has affected a whopping 10,694,288 people and 516,210 deaths worldwide. (Source: European Centre for Disease Prevention and Control)
Countries have slowly declared falling stock prices in the market. As China was the first country to be hit, its exports fell 17.2 percent and overall consumer demand continue to decrease. Economists predicted a decrease in country’s GDP and have warned of an upcoming recession.
In Dubai, 70 percent of companies were surveyed by the Dubai Chamber to go out of business, and three-quarters of travel and tourism companies due to the coronavirus pandemic. As Dubai is a non-oil dependent economy in the Gulf, it relies heavily on sectors like retail, entertainment, hospitality, tourism and logistics. This pandemic has become a test of resiliency for many industry sectors.
The real estate sector has been resilient amidst the pandemic blow. A Dubai-based broker have announced an increased activity in the market registering 67 percent buyers and 28 percent tenants during lockdown period. In fact, there has been a total of 4,356 sales transactions in Dubai for the first months of 2020 according to Dubai Land Department. Dubai’s real estate experts see a positive outlook amidst the pandemic in this sector as price remain tenant-friendly and slowly stabilize.