A flourishing tourism boom in Dubai and Saudi Arabia is bolstering the resilience of the non-oil sectors in the Middle East, even amid a general economic slowdown driven by reduced oil production in the energy sector, according to economists and analysts.

Dubai’s tourism sector saw remarkable growth in the second quarter, surging by 20% compared to Q1 2023, with an impressive 8.6 million tourists arriving during this period. The city has ambitious plans to attract as many as 40 million hotel guests by 2031. In 2022, Dubai welcomed 14.36 million international visitors, a significant increase from the 7.28 million in the previous year, surpassing global and regional tourism recovery levels.

Meanwhile, Saudi Arabia has also experienced substantial growth in its tourism sector, with an impressive 225% increase since Q1 2022, as indicated by the latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics.

Scott Livermore, ICAEW economic advisor and Chief Economist and Managing Director at Oxford Economics, stated, “The non-energy sector in the region is displaying remarkable resilience, driven primarily by tourism-related industries. Data shows double-digit growth in transportation, storage, accommodation, and food services.”

By the end of 2023, Dubai’s hospitality sector is projected to have approximately 154,000 operational rooms, marking a notable 6.4% increase from 2022, according to a report by Knight Frank. With an existing supply of 207,200 hotel rooms, the UAE also has an additional 24,500 rooms in various stages of development, further solidifying its global leadership in the hospitality sector.

Data from STR indicates that the overall Dubai market recorded a 0.8% increase in Revenue per Available Room (RevPAR) compared to July 2022, driven by a 6.8% rise in occupancy but constrained by a 5.6% decrease in Average Daily Rate (ADR).

The ICAEW report notes that the Middle East’s economic performance weakened in Q2 due to the energy sector’s reduction in oil production. This resulted in a 0.4 percentage point downgrade in GDP growth, with a forecasted growth rate of just 1.7% for the year. Projections for GCC growth in 2023 have also been scaled back by 0.5 percentage points to 1.4%.

Nevertheless, the non-oil sector and domestic demand show encouraging signs, with businesses reporting growth in customer bases and employment. However, challenges may arise from the impending impact of high-interest rates on consumption and private investment.

Livermore emphasized that despite the slowdown, optimism persists as the region’s non-oil activity remains robust.

Looking ahead, the planned inclusion of the UAE and Saudi Arabia into the BRICS group next year is expected to create new opportunities for increased trade and investment. This development will also reduce their reliance on the US dollar, offering a positive outlook for the future, according to Hanadi Khalife, Head of Middle East at ICAEW.

Livermore concluded by highlighting the pronounced impact of recent energy cuts on the economic outlook for this quarter. He noted that 2023 is forecast to be the GCC’s weakest year for the energy sector since 2017, excluding the exceptional circumstances of 2020. In contrast, the tourism industry’s surge continues to support the GCC’s diversification efforts, with expectations of 30 million international tourists visiting Saudi Arabia next year and 3.17 million visitors arriving in Qatar.