Has the Euro crisis affected expats in the UAE? – Expat Forum

The United Arab Emirates is a region of the world which has attracted more than its fair share of controversy over the last few years with the rise and fall of the Dubai economy. However, as the Euro crisis goes from one disaster to another we thought it would be interesting to take a look at the impact this is having on expat communities around the world and whether indeed it is as severe as many experts predicted.

Before we take a look at the results from the UAE expat community we will now take a look at the European economy and see where it stands today.

The European economy

The Eurozone and Europe have been very much headline news over the last couple of years and indeed an issue which began when the Irish economy collapsed has very quickly spread to the likes of Spain and Italy. Spain is currently on the verge of an economic meltdown and indeed while the Spanish government is reluctant to ask for financial help it seems almost inevitable it will be required in the short to medium term.

The wider Eurozone economy is also struggling and former powerhouses such as France and the UK have finally succumbed to the economic downturn. The French economy is flat lining while the UK economy fell by a whopping 0.7% in the second quarter of 2012. While the UK is not actually part of the Eurozone and did not adopt the euro there is no doubt that the European crisis is having a massive impact. At this moment in time it is only really Germany which is holding the Eurozone economy together and helping to avoid a double dip recession in the short term. However, the longer this situation drags on the more chance that Germany will succumb to the economic downturn and indeed Europe will fall back into a double dip recession.

Unemployment is also a major problem across the Eurozone at around 11.2% although this is nothing compared to the 25% figure recently confirmed by the Spanish government. When you also take into account that manufacturing is well down over the last quarter and both investor and business confidence is struggling, it is difficult to see any good news on the horizon. Tinkering with central bank base rates across Europe is having little impact and we now await financing programs from the likes of the ECB and other central banks around the world to kickstart the European economy.

We will now take a look at the results from the UAE expat community with regards to the question, has the Euro crisis affected you?

No (44.44%)

We are starting to see a pattern emerge among some of the worlds more developed countries with the vast majority of expats suggesting they have yet to feel any real pain from the Euro crisis. This may well surprise many people when you bear in mind the very negative headline news and the doomsday scenarios being predicted by experts. One issue which is becoming more and more relevant is that the consumer, business and investor confidence which could actually lead to a self-fulfilling prophecy if the doom and gloom stories are to be believed.

We could in theory end up talking ourselves into a double dip recession which will be very difficult to pull away from in the short to medium term. The fact that some people are not yet experiencing any impact from the Euro crisis is encouraging but it may well mean that more problems are being stored up for the future?

Yes (33.33%)

The United Arab Emirates is a country which has had more than its fair share of economic woes over the last decade with the majority having been connected with the Dubai economy. This is an area of the world which has experienced massive inward investment only for the property market and the financial arena to collapse and investors repatriate their funds once the worldwide economy began to struggle.

It is interesting to see that 33.33% of expats who took part in our online poll have been impacted by the Euro crisis because economic data from the UAE would suggest that the area is currently experiencing economic growth which has increased over the last three years. Therefore, we can only assume that a number of expats in the region either have assets in Europe or indeed they have investments in Europe which are struggling. There is also the issue of savings with minimal interest available on savings accounts meaning that many people who retired to the area will now need to dip into their savings to cover everyday expenditure.

It is difficult to see anything but an increase in the yes vote in the short to medium term especially if European leaders are forced to make very difficult financial decisions to protect the Euro and the Eurozone in the longer term. Is there more pain to come?

Not yet but I expect it to (22.22%)

One thing which is becoming more and more apparent after considering the results of our online poll is the fact that while a significant number of expats have yet to feel any pain from the Euro crisis there is a balancing number who expect to feel pain in the short term. It would not take much of a shift from those in the “not yet but I expect it to” camp to move to the “yes” camp to have a major impact upon consumer, business and investor sentiment which could bring about further short to medium term issues, with expats effectively talking themselves into a downturn.

If however on the other hand European leaders can in some way avoid the doomsday scenario which many experts are predicting then we could yet see this particular group of voters becoming more positive and having a positive impact upon economic activity. You could argue that there is more pain to come from the Euro crisis although you could also argue that international opinion is currently on a knife edge and awaiting developments regarding financial bailouts and long-term rescue packages.

Impact on UAE employment market

The UAE is still fairly secretive with regards to official economic data and it is very difficult to obtain accurate unemployment figures. Indeed it is also worth noting that this is an area of the world where unemployment benefit is not available although many politicians are pushing for the introduction in the future. Unofficial estimates with regards to unemployment in the UAE are anything up to 13% which is obviously a major concern and not a figure which local governments will be comfortable with.

However, we must also balance this speculation with detailed information available on the Dubai economy which grew by 2.5% in 2010, in excess of 3% in 2011 and is expected to grow by around 4.5% in 2012. Against this backdrop it is difficult to see how short-term unemployment can go anywhere but down although it is the discrepancies and inaccuracies within official data which mean any forecasts are not necessarily made on a confident basis. In many ways you could argue that the UAE, and in particular Dubai, has already experienced a major financial meltdown and is now beginning to slowly pull itself back into positive ground. It is still an area of the world which is still popular with expats, it is an area of the world which will eventually attract more overseas investment and there is potential for the future.

Impact on UAE savings

A review of interbank lending rates would suggest that interest rates across the UAE are extremely low at around 1.375% which is just off an eight year low. This is a major concern for expats in the region because there are very few areas of the world’s offering an interest rate on savings accounts which match or beat local rates of inflation. Indeed the cost of living continues to increase relentlessly around the world and while many people had in the past been able to live off the interest on their savings more and more are now dipping into their capital reserves.

It is rather perverse that those who have saved for a rainy day are the ones who’ve been impacted most by the worldwide economic downturn which has seen Central bank interest rates fall to record lows. While the UAE interbank rate is around 1.375%, and well above base rates in the UK at 0.5% for example, it is really of minimal benefit when looking at the overall return available on savings accounts. It may well be that more and more people are now being tempted back into the investment and the property arenas in the UAE which has been reflected in economic growth over the last three years. It will be interesting to monitor the situation going forward to see whether savers are in fact leaving banks en masse and looking at investing again.

Impact on investments

As we touched on above, there has been renewed economic growth across Dubai for example ranging from 2.5% in 2010, to over 3% in 2011 with expectations of economic growth in the region of 4.5% for the current year. This would seem to suggest that maybe savers are looking at investing their cash rather than watching the real value of their assets fall because of relatively low savings rates when compared to inflation.

It is quite ironic that the UAE economy as a whole seems to be stronger than the worldwide economy when you bear in mind that many investors immediately repatriated their funds at the first sign of trouble back in 2008/09. This did cause a major sell-off of UAE assets, a reduction in economic activity and ultimately plunged the area into a very dark and difficult period. However, slowly but surely it looks as though UAE leaders have built upon their initial optimism for economic growth at the turn-of-the-century and are now very much getting back on track. Have lessons been learned?

Impact on the UAE society

Just the merest of glimpses around the UK, Spain, Greece, etc shows that there is significant friction between local governments and the local population – specifically with regards to austerity measures which are hitting everybody hard. There is no such social unrest within the UAE primarily because of very strict government controls on demonstrations and protests but also the fact that the UAE now appears to be back on the economic growth track.

There has been unrest in the overall region although Dubai has managed to avoid any major issues. The truth is that if the economy is growing, if life in the UAE is still relatively comfortable then what exactly do the local expat population have to complain about? Perhaps this view is slightly tempered by the fact the authorities arrested activists and protestors en masse at the first sign of trouble although the economic situation in the UAE appears to show little resemblance to the Euro and the Eurozone and the impact at this moment in time is minimal.

Recent developments

Time after time we have been promised rescue packages, bailout packages and political agreements which would secure the long-term future of the Euro and the Eurozone. However, time after time European leaders have disappointed and a number of groundbreaking agreements have unravelled and disappeared sometimes within just hours of their announcement!

There does however seem to be some scope for optimism at this point in time with the European Central Bank (ECB) suggesting it will “do whatever is required to save the Euro” even if the German Bundesbank does not appear to be as bullish. The reality is that we are now very much at the endgame for the Euro and the Eurozone and decisions made over the next few months will decide whether the euro and the Eurozone survive. The jury is out at this moment in time with regards to the future of Europe as a whole with some suggesting speculation about the ECB, and other central banks, buying the sovereign bonds of near bankrupt governments such as Spain and Italy will breathe short-term life into the economy.

At this point in time it is very important that the ECB manages expectations and attempts to improve consumer, business and investor sentiment in the short to medium term. Any promises which cannot be fulfilled will have a monumental impact upon sentiment across-the-board and could well put the European economy further back than ever before. A concerted effort by European governments and non-European governments in relation to various rescue packages and bailout funds is needed immediately and may well just be enough to give European leaders breathing space in the short term to consider the future.

The future

There is growing speculation that we are moving very quickly towards a federal Europe structure which would see a central government in Europe appointed and taking effective control of all European member state budgets. While this is not something which the UK government and UK voters are happy about many experts believe it is the only way forward to give the financial strength in depth which the Euro and the Eurozone requires to survive in the future.

Many people believe that the German government, which is very much in control of Europe, has been pushing for a federal Europe for many years now. At this point in time it is Germany which holds all of the aces in a federal Europe structure and it would be in a position to dictate both monetary and political policies to individual member states going forward. However, it is also worth noting that Chancellor Merkel has her own issues back in Germany where German voters are reluctant to commit more capital to the European rescue fund to bailout weaker European counterparts.

Comment from the expatforum.com :-

“I wonder to know if European debt crisis and American/World possible economic recession impact UAE work employment/market. Thanks to share your thoughts & daily reality…”

“Immensely, the UAE is largely a tax haven and place for some creative accounting for the west. If their income is down then there is less to “invest” here.”

Conclusion

The UAE, and perhaps the most recognisable emirate Dubai, is showing signs of impressive economic recovery having grown 2.5% in 2010, in excess of 3% in 2011 and expected to grow by around 4.5% in 2012. This has in many ways insulated the expat community from the ongoing Euro crisis with the vast majority reporting no effects from the crisis as yet. The longer the European crisis continues the more chance there will be some impact on the UAE economy and the UAE expat community but this could well be tempered somewhat by local economic growth.

We are starting to see a pattern emerge with regards to the Euro crisis with more and more expats from developed countries reporting little or no impact upon their own financial position in the short term. Whether this will change in the longer term remains to be seen because a complete collapse of the euro and the Eurozone and have a massive impact upon money markets around the world and reduce liquidity for the business arena and the consumer arena.

It is interesting to see the different degrees to which expats around the world have been impacted by the Euro crisis. It will also be interesting to see how this develops in the short to medium term as we arrive at the very critical endgame for Europe as a whole. Will worldwide leaders be able to rescue the euro and the Eurozone? Or will a collapse of the Eurozone drag down the worldwide economy?

Related posts:

1. Has the euro crisis affected expats in Australia?
2. Has the Euro crisis affected expats in Canada?
3. Has the Euro crisis affected expats in France?
4. Has the euro crisis affected expats in Ireland?
5. Has the Euro crisis affected expats in Spain?

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