Traffic is thinner, housing prices are in freefall, and hotels are more affordable. Schools that once furiously turned students away are suddenly welcoming, and snobbish sports clubs are unexpectedly friendly.

This is the new Dubai – a city that, for the fortunate ones who are holding on to their jobs, now feels a lot more pleasant.

The gossip among expatriates – and they form the vast majority of the population – is about how the global financial crisis has arrested the city-state’s wild ride and driven some of their friends away.

Even the most cynical residents admit Dubai is down but not out and that it will eventually make a comeback as a less exuberant and, above all, as a more liveable place.

It will take determination, however, to endure the economic downturn and to shift Dubai’s mindset from insatiable ambition for bigger and glitzier towers to more modest aspiration and cautious crisis management.

It took months for the government to admit the emirate had overleveraged and overextended itself as it rushed to build the Middle East’s leading business hub. Even today, Dubai remains obsessively keen to keep its problems out of the public eye.

Yet Dubai is also starting to act. It swallowed its pride and borrowed $10bn (with as much available still) from the federal government of the United Arab Emirates – in effect, its richer neighbours in Abu Dhabi – to help refinance its debts and to assist government-affiliated companies to pay their bills.

And it has started to restructure and to consolidate its sprawling government-affiliated conglomerates, which had thrived on competing against each other, feeding the construction frenzy that has now ground to a halt, and leaving contractors fuming about unpaid bills.

The Dubai model was based on thinking big and accomplishing the impossible, but the city-state has been forced to scale back as projects are put on hold or scrapped.

In the short term, there is more pain in prospect. Everyone in the city is waiting for the end of the school year to see how many expatriates leave. The government claims there are still more people moving in than out but some banks forecast the population will shrink by as much as 17 per cent.

To limit the pain, Dubai will have to act even more vigorously on two fronts. First, it has still to convince the markets it is capable of engineering a fundamental restructuring.

The emirate likes to be known as an outwardly, cosmopolitan city, but it has not come to terms with the responsibility alongside that – crucially, the need for transparency.

“We don’t have a problem about Dubai repaying its debts. Our question is: can they implement what they have to?” says a senior banker. “They’re not providing information and it’s a badly timed silence.”

Second, Dubai should find some way to allow expatriates who lose their jobs (and therefore their residency visas) to stay on in the city.

Lay-offs leave residents in a legal limbo, if not actually a legal nightmare, and the jails are filling up with people accused of bouncing cheques, which is a criminal offence in the emirate.

The scale of the problem has even prompted Dubai’s police chief to call for a change in regulations.

“Dubai doesn’t have legal infrastructure. But now that contractors are not being paid, employees are being laid off [and consequently] Dubai as a financial centre faces a big test,” another banker points out.

If these central problems were to be tackled, then Dubai could, as its officials are hoping, be among the first to rebound when the global economy recovers. Dubai as the region’s main business centre remains viable.

Even neighbours that secretly rejoice at its present distress will admit that.

Despite the misguided focus of recent years upon real estate, the economy has solid foundations. Dubai, after all, is the region’s main trading hub, with ports and airports unmatched in the Gulf. Tourism, too, will recover, and the emirate will probably remain the favourite finance base for the Middle East.

As one eminent businessman expresses it: “By [forming] a service economy, Dubai has become a clearing house for this part of the world, where suppliers of goods and services meet buyers.”

The city-state will endure two bad years, he forecasts. But he concludes by insisting: “[Even as] a scaled-down version, it will still work.”

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