DOHA: Underpinned by government spending on the country’s $210 billion development plan, the non-hydrocarbon sector will continue to be the driver of economic growth in Qatar. Fiscal and current account surpluses are expected to narrow over the next two years owing to the dramatic decline in oil prices. The pace of accumulation of net external assets is therefore expected to slow down. Despite softer energy prices, the fiscal stance should remain relatively expansive, however, with the government continuing to spearhead economic growth through execution of its time-sensitive World Cup and associated infrastructure plans. Inflation is set to rise, albeit gradually, stoked by rising rents but restrained by soft international food and commodity prices, the latter also reflecting a stronger US dollar.
Economic growth to remain robust
Real GDP growth is forecast to remain strong at 6.5 percent per annum over the next two years due to continued expansion of the country’s non-hydrocarbon sector. The decline in energy prices of almost 45 percent for oil (Brent) and 33 percent for natural gas (World Bank composite index) since June 2014 should not materially impact growth in the short-to-medium term, though it may lead to a re-prioritization of capital projects.
Output gains from the non-hydrocarbon sector are expected to be broad-based, with construction, financial and government services, and trade and hospitality leading the way with growth of above 10 percent y/y.
Central to the economic outlook is execution of the government’s 5-year,$210 billion infrastructure development plan, which is expected to proceed in spite of the decline in energy prices. $29 billion worth of contracts were awarded in 2014-30 percent more than in 2013-and we expect momentum to further increase in 2015 on the back of the $13 billion worth of contracts for strategic projects awarded in 1Q15. These include the $28.8 billion Qatar Integrated Railway and the $14.6 billion local roads and drainage program. (Chart 3.)Other high-profile projects that should gain further traction in 2015-16include the $33.0 billion Lusail Mixed-Use Development, the $10.3 billion Barzan gas production facility and the $7.0 billion New Doha Port.
Two notable projects that will not be pursued are the Al-Karaana and Al-Sejeel petrochemical complexes, costing $6.4 billion and $5.6 billion, respectively. These two projects would have, on completion, provided a further boost to the country’s downstream hydrocarbon sector but were deemed commercially unfeasible in light of the decline in energy prices.
The hydrocarbon sector itself will be looking to the 1.4 billion cubic feet per day (bcf/d) Barzan gas production facility to provide an incremental boost to the sector’s output in 2015-16.Barzan was the last project sanctioned before the 2005 moratorium on gas extraction from the country’s giant North Field was put in place. The boost to output is expected to be in the order of 0.2-04 percent of GDP, and mainly as a result of increased volumes of gas by-products such as condensates and natural gas liquids (NGLs). These have largely taken over from crude oil as the predominant liquid fuels products.
Inflation likely to rise gradually, with rental inflation restrained by softer food and commodity prices
Headline inflation is expected to rise gradually over the forecast period, from 2.7 percent y/y at the end of 2014 to 3.2-3.5 percent in 2015-16. While the prospect of a strengthening US dollar, to which the Qatari riyal is pegged, should help restrain imported inflation, domestic inflationary impulses driven by rising rental prices will continue to exert upward pressure on the consumer price index (CPI). Rental inflation reached 7.3 percent y/y in at the end of 2014 and is expected to rise further ahead of an increase in the supply of housing. Increasing demand for housing saw property prices surge by a record 43 percent y/y last January, according to Qatar’s real estate price index (REPI). As of March, real estate prices were up by 29.6 percent y/y.
At the beginning of 2015, the base year for Qatar’s CPI was reclassified, with the number of categories increasing from 8 to 12 and the base year changing from 2007 to 2013. According to the rebased index, inflation slowed to 0.9 percent y/y in April from 1.4 percent y/y March.
