Recession Clouds Reaching as Far as Dubai

BEIJING -- The worldwide economic slump is slashing demand for exports from Asia, aggravating China's downturn and threatening to push some countries into full-blown recession.After nearly a decade of eye-popping growth, China's economy slowed dramatically in the last quarter of 2008, recording gross domestic product growth of just 6.8 per cent at an annual rate, down from 9 per cent the previous quarter. _GlobeandMail

Whether a nation's economy is based upon exports, like China or Russia, or based upon financial services like Dubai, the current global credit crisis and de-leveraging is causing significant dislocations. Consider Dubai, a nation once thought to have a bullet-proof economy:

No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.

...Some things are clear: real estate prices, which rose dramatically during Dubai’s six-year boom, have dropped 30 percent or more over the past two or three months in some parts of the city. Last week, Moody’s Investor’s Service announced that it might downgrade its ratings on six of Dubai’s most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale , they are sometimes sold for 40 percent less than the asking price two months ago, car dealers say. Dubai’s roads, usually thick with traffic at this time of year, are now mostly clear.

...For many foreigners, Dubai had seemed at first to be a refuge, relatively insulated from the panic that began hitting the rest of the world last autumn. The Persian Gulf is cushioned by vast oil and gas wealth, and some who lost jobs in New York and London began applying here.

But Dubai, unlike Abu Dhabi or nearby Qatar and Saudi Arabia, does not have its own oil, and had built its reputation on real estate, finance and tourism. Now, many expatriates here talk about Dubai as though it were a con game all along. Lurid rumors spread quickly: the Palm Jumeira, an artificial island that is one of this city’s trademark developments, is said to be sinking, and when you turn the faucets in the hotels built atop it, only cockroaches come out. _NYT

Most unfortunate. The Arab world truly needed an interface to the larger world such as Dubai. A place where Arabs and Muslims could pretend to be free of the irrational tribal strictures of Islam, at least for a while. The dream was to create an Arab "halfway house" that would ease the transition of the Arab world from the middle ages to modern times. It looks as if medieval Saudi Arabia will have the last laugh. At least until Iran drops the big one on Riyadh.

After that, one may have to wait quite a while before anyone laughs again in that part of the world.