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QNB Capital: IMF expects Qatar's growth to exceed MENA and global averages

Doha, 11 February 2012 - The IMF's latest Article IV report on Qatar forecasts robust economic performance over the medium term (2013-16). Qatar's real GDP growth is expected to average 5.3% for that period exceeding the regional and world levels. The IMF expects the non-hydrocarbon sector to be the main driver of growth, increasing by 9.6% on average during this four year period. There will be little change in oil and gas production over this period, until the Barzan gas project comes on stream in 2016.

According to QNB Capital , the strong growth in the non-hydrocarbon sector will be supported by high hydrocarbons prices. This is because strong hydrocarbons revenue tends to boost both government spending and private consumption, reinforcing economic activity in the non-hydrocarbon sector. Therefore, the recent strong growth in the hydrocarbons sector will trickle down to the non-hydrocarbons sector in the medium term.

The oil price assumptions on which Qatar bases its budget tend to be considerably lower than prevailing oil prices. This suggests that unless there is a dramatic drop in oil prices below the conservative scenario assumptions, Qatar's growth will continue to stay stable.

The IMF is forecasting that there will be a 24% increase in the non-hydrocarbon component of government revenue over the period. This will take it to almost QR150bn in 2016, when it will represent 56% of the total fiscal income. This is sizable increase on 2013, when it is forecast to be just 50% of the total. QNB Capital notes that investment income from Qatar's foreign holdings is a major contributor to this growing non-hydrocarbon revenue.

The government aims to fully finance the budget from its non-hydrocarbon revenues by 2020, providing a safety buffer in the event of hydrocarbon price shocks. The IMF's medium term forecasts suggest that it will make good progress towards this objective.

The IMF also forecasts average inflation of 4% to 5% during 2013-16. Inflation has fallen in recent years mainly due to an oversupply of property, which led to lower rental prices. Additionally, strong economic growth will drive domestic demand and hence prices, according to QNB Capital .

The Qatari authorities acknowledged that the economy could face potential inflationary pressures over the medium term from three channels. Firstly, the expansionary effect of the Barzan gas project that will start in 2012 and be completed by 2015. Secondly, the implementation of major projects in the non-hydrocarbon sector. Thirdly, expansionary government expenditure, including recent salary increases for nationals. The former two channels pose little concern to the authorities as they are growth generating. The impact of the public sector wage increase will depend on how much of the salary increase is spent rather than saved.

Most of the inflationary pressure in 2013-16 will come from the non-tradable sector, notwithstanding the excess supply in real estate, which will keep rents depressed. Compared to the overall MENA region and the world, Qatar's inflation will be respectively below the average and above the average.

The IMF's overall economic outlook for Qatar is therefore positive with strong growth, moderate inflation and fiscal surpluses which will to continue in the medium term.

Consequently, Qatar is going to outperform compared to regional and world averages. This will lead to real GDP growth in Qatar superior to the Middle East and North Africa (MENA) region by an annual average of 0.6 percentage points and the advanced economies by an annual average of 2.6 percentage points during 2013-16, based on IMF forecasts.

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© Press Release 2012