Qatar’s economy is delivering an “impressive buoyant performance” in the midst of sluggish global conditions, according to a new study
By Pratap John
Chief Business Reporter
Underpinned by its huge natural gas resources, Qatar is poised to become the third largest economy in the GCC region by 2012, research has shown.
Beyond an 18.5% real GDP growth forecast for Qatar in 2010, the highest worldwide, the International Monetary Fund (IMF) forecasts 14.3% in 2011 and 9.2% for the country in 2012.
Qatar is set to become one of the top “macroeconomic picks” by investors in the Mena region, Bank Audi says in a study titled “A mix of opportunities and challenges for the World’s fastest growing economy”.
The study says that Qatar’s national economy is delivering an “impressive buoyant performance” in the midst of sluggish global conditions. The country’s economic growth is apt to display strong two-digit rate in 2010, thanks to the continuing expansion of its natural gas sector, the strong countercyclical policy responses by the authorities and the strengthening of external demand, which can lead to a recovery in the non-hydrocarbon sector.
According to the study, Qatar economy is riding on a “massive hydrocarbons capacity expansion boom”, which is driving its record high growth rates. Two major new liquefied natural gas (LNG) projects come on stream in the current year.
The LNG expansion, along with the completion of a massive aluminum plant and other mega projects such as the Ras Laffan condensate refinery and Al Khalij Gas II, boosts Qatar’s national economy. The report notes that Qatar’s LNG production capacity is expected to surge to 77mn tons per year by early 2011.
At the fiscal policy level, development expenditures are likely to continue supporting growth. Those are projected to rise by about 15% in 2009/2010, with the government continuing to invest in carefully prioritised and sequenced infrastructure projects.
The government is in the process of tendering a number of large-scale infrastructural projects, including a new airport and sea port in Doha, in addition to wide transport networks and an urban regeneration programme under the Public Works Authority.
Despite ambitious planned spending, the fiscal account is expected to remain in comfortable surplus in 2010, according to Bank Audi, while trade and current account surpluses are expected to rebound after the relative declines in 2009.
At the monetary policy level, unlike other countries in the region, Qatar did not feel the need to adopt “aggressive monetary easing”.
Qatar has kept benchmark interest rates and reserve requirement ratios on hold since the outburst of the global crisis.
“As such, the differential with foreign benchmark rates has widened substantially to new historical levels. Within this context, inflation is expected to average 1% this year, after a negative rate of -5.5% in 2009 owing to a large decrease in domestic rents and falling international prices for food and raw materials,” the study says.
It notes that in the midst of buoyant economic activity, banking performance has been “solid”. In the first five months of this year, bank deposits grew by 11.4%, generating a lending growth of 8.4% despite the continuing global and regional credit squeeze.
The banking system continues to be well capitalised and profitable, with nonperforming loans among the lowest in GCC, reflecting both prudent regulation and government support to banks in the course of the past year.
At the capital markets level, both equity and fixed income markets benefited from growing investors’ interest, Bank Audi points out. Qatar’s General Price Index of its stock market rose by 8.5% over the first four months of 2010, although trading volumes remain thin at an annual 18.0% of market capitalisation.
As to fixed income paper, despite growing credit concerns worldwide after the Greece crisis and its wide contagion spillovers, the five-year Credit Default Swap spreads for Qatar managed to contract by 15 basis points year-to-date, moving from 105 basis points at end-December 2009 to 90 basis points at end-June 2010.
At the level of weaknesses, the Bank Audi report mentions the strong dependence on hydrocarbons within the context of a weakly diversified economic base, the wide government spending which could erode fiscal flexibility, the significant recent rise in public sector gross indebtedness, the relatively weaker institutional profile relative to peer countries and the poor disclosure regarding the government’s assets.
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