Oil emirates feel recession's pinch

DUBAI, UNITED ARAB EMIRATES - The skyscrapers have not stopped rising, and planeloads of hopeful migrant workers still fill a gleaming new airport terminal in the center of this modern Gulf metropolis.

The arrival this week of soccer star David Beckham for winter training and pop diva Shakira for a concert in nearby Abu Dhabi have added an electric charge to the air -- even if New Year's parties are in doubt after the emirate's ruler reportedly called off all celebrations in solidarity with the Palestinians in Gaza.

Indeed, compared with war-ravaged Gaza and Baghdad, Dubai remains for many a shining Middle East success story. Yet the fallout from the economic crisis has forced this traditionally optimistic boomtown to view 2009 with an uncertainty unknown for years, if ever.

Property buyers are disappearing. Consumers are spending less. Job reductions have begun.

"It's certainly a jarring experience for many in the business community," said Aamir Rehman, author of "Dubai & Co.," a book about doing business here. "There have been recessions in the Gulf before, but those were before Dubai rose to the prominence it now enjoys. ... Most people working in Dubai have not seen this before."

The emirate's main stock market has lost more than two-thirds of its value this year. Oil prices, which indirectly buoyed the city-state's economy by expanding the regional wealth, have fallen sharply from their July highs.

Suddenly, this city's swagger has been eclipsed by anxiety.

He said he's been flooded with calls from worried lower- and middle-class residents seeking financial help both on air and after hours.

"Many of them have taken loans. Now, when they lose their jobs they are not able to pay back the money," he said.

Eye on debt load

For analysts, much of the concern is centered around Dubai's debt load and its supercharged yet credit-financed building boom.

Moody's Investors Service, a leading debt rating agency, said Tuesday that the creditworthiness of the Emirates federal government -- of which Dubai is one of seven members -- remains as high as that of Italy or Portugal.

Debt rating agencies also have been cutting their views on a number of companies with ties to the Dubai government.

Standard & Poor's analyst Farouk Soussa warned in a recent report that risks have grown "as demand in the all-important real estate sector shows clear signs of abating, raising the possibility of a sharp correction" in property prices.

That has scared away many buyers. Others still willing to take the plunge find it's tough to get loans. In turn, many of Dubai's largest property developers have scaled back some major projects to focus attention on those in progress.

So sudden has the change of fortunes been that one new state-sponsored company recently announced it was reassessing the start of a $95 billion real estate project just two months after it was begun.