Dubai's economic growth will outperform that of Abu Dhabi, but its exposure to world economy bears downwards risks, said Farouk Sousa, Citigroup's chief economist for the Middle East, in a study published Wednesday.
Dubai will remain the economic motor of the United Arab Emirates (UAE) in 2013, while the UAE capital Abu Dhabi will lag behind, said Soussa in the Middle East Macro Monthly report.
Soussa forecasted that Abu Dhabi's real GDP will shrink by 0.8 percent this year, but Dubai's real GDP will grow by 5.1 percent, mainly due to a comeback in the real estate sector, supported by a pick-up in trade and tourism.
Earlier in the week, Dubai airport said passenger numbers grew 12.8 percent year-on-year in September, reaching 4.78 million people.
"We have upgraded our growth projections for Dubai, mainly on the back of a reassessment of the growth prospects in the construction and real estate sectors," said Soussa.
According to property services company Cluttons, Dubai has seen a steady recovery in the property market through the year, with property prices rising by 20 percent year-on-year in August 2012.
"For investors, we think the economic recovery and pick-up in the real estate market is unambiguously good news in the near-term, " said Soussa, who also warned that new downside risks have emerged. "We caution against early signs of exuberance, such as the re-emergence of off plan sales and the risks of excessive supply given some of the recently announced projects. Such exuberance could undermine not only the sustainability of the real estate recovery but lead to dislocations in the wider economy as well," said Soussa.
Dubai has also seen a slight fall in trade due to tougher sanctions imposed by the Europe and the United States against Iran. "Direct export growth has fallen in 2012 to about 10 percent. We think this is largely reflecting the impact of tougher sanctions against Iran, one of Dubai's largest trading partners."
In addition, Dubai is exposed to turn in global conditions more than neighboring Abu Dhabi. Dubai harbors the Middle East's largest container freight port as well as the region's busiest airport.
As long as the IMF's gloomy forecast do not materialize, Soussa remains bullish for Dubai. For 2013 he predicted a real GDP growth 5.8 percent, while Abu Dhabi will add 3.4 percent to its real economic output.