Qatar economy to remain strong despite oil prices

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High public investment and higher gas output linked to the launch of the Barzan production facility should see Qatar’s economic performance remain relatively strong through 2016 and 2017, National Bank of Kuwait (NBK) said in a report released today.

Inflation is expected to edge up slowly, once the deflationary effect of soft international food and commodity prices begins to ease and once rental costs resume their upward trajectory. A stronger dollar should keep imported inflation in check, NBK said.

Qatar is expected to record in 2016 its first fiscal deficit since 1999 due to the fall in oil and gas prices. NBK said that non-essential capital projects are likely to be scaled back amid a drive to rationalise spending and stimulate the private sector. As low energy prices feed through to the banking sector in the form of slowing deposit, credit and asset growth, liquidity has tightened and rates have risen. Qatar, with strong fiscal and external buffers including net external assets equivalent to 132 per cent of GDP, is better placed than most of its peers to negotiate the current downturn.

NBK said risks to the outlook centre on the trajectory of energy prices, the performance of the global economy, volatility in financial markets and delivery of the authorities’ domestic infrastructure program ahead of the World Cup in 2022. Qatar’s position as the leading LNG exporter in the world is likely to come under pressure by the arrival of Australia and the US as major LNG competitors in 2016.

Real GDP is forecast to grow by 5.4 per cent in 2016 and 5.1 per cent in 2017, from an expected increase of 4.9 per cent in 2015. (This figure, while down from the 9.2 per cent annual average witnessed during 2010-2014, still puts Qatar among the most dynamic economies in the GCC,  NBK said.

Hydrocarbon sector output is expected to receive a boost from the commissioning of Barzan in late 2015, which should reach full production of 1.4 billion cubic feet per day in 2016. Real hydrocarbon growth is expected to be 0.7 per cent in 2015 and 1.7 per cent in 2016, before falling to 1.0 per cent in 2017.

NBK said the non-hydrocarbon sector remains the main determinant of Qatar’s economic growth which is forecast to be 9.1  per cent on average between 2015 and 2017. Financial services, construction and trade and hospitality will continue to drive Qatar’s non-hydrocarbon sector. Economic expansion is also being propelled by burgeoning population growth of 8.8 per cent which is helping to boost domestic consumption.

Qatar’s fiscal balance is likely to swing into deficit in 2016, for the first time since 1999. The fiscal surplus is forecast to narrow from 16.1 per cent of GDP in 2014 to -0.5 per cent of GDP in 2016. In 2017, the fiscal account should just about balance. Similarly, the current account surplus is likely to narrow considerably, NBK said.

NBK said the prospect of a sustained period of low energy prices has prompted the government to proceed with reforming the state’s finances. New measures include the introduction of a QR 600 billion ($165 billion) spending cap on new investment projects for 10 years; the creation of a macro-fiscal unit and public investment management department (PIM); the shift to a calendar rather than a fiscal year budget (effective in 2016); the withdrawal of subsidies to certain state institutions and the privatisation of semi-government institutions. The last two measures were announced by the Amir in November 2015 and form part of an effort to shrink state monopolies and boost the economic contribution of the private sector.