Qatar remains among the most stable countries in the region. Business optimism (and consumer confidence) in Qatar remains high. Qataris benefit from massive hydrocarbon wealth which is spread generously across the country's population and enjoy the highest per capita GDP in the world. According to BMI Research, the performance of the Qatari economy will be more mixed than in recent years, amidst the intertwined pressures of the global energy slump and tightening domestic liquidity. BMI Research forecasts real economic growth of 3.1% this year and 3.6% in 2017, driven mainly by strong growth in investments in preparation for the FIFA 2022 World.
Competition in all sectors, particularly in the construction sector, is rapidly rising as more firms are entering Qatar to profit from its resilient economic activity.
Given a large global gas glut and large shale gas production capacity around the world, Qatar is not keen on boosting capacity at the moment but as Europe seeks to diversify its gas supplies away from Russia, the country will benefit – the Barzan gas project should come online soon and this will also slightly lift growth in the hydrocarbons sector.
However, Qatar’s budget break-even oil price is just above $50, which means that a prolonged period of oil prices below that level could start negatively impacting the country’s investment plans.
Lower hydrocarbons prices do not present a significant threat to Qatar's fiscal sustainability. The government will seek to tighten control over public spending and rationalize Qatar's vast pipeline of infrastructure projects - a trend that will be positive for the economy over the longer run.
GDP growth in 2016-2017 is expected to be driven by the non-hydrocarbon part of the economy, but there will be ongoing pressures regarding government revenues (some banks are also facing some liquidity issues and have already raised capital boosting bonds). GDP growth should reach 3.2% in 2016, largely driven by non-hydrocarbon activities, but indirectly supported by regular incomes from hydrocarbons and public borrowing.
The GDP is estimated to have grown by 3.7% in 2015 on the back of resilient non-mining activity (+7.8%), whereas mining activity was quite poor (-0.2%) due to lower prices, maturing oil fields, maintenance issues and the moratorium on gas production.
According to an independent study specified by CEEMEA Business Group, Qatar is currently the world’s second most attractive market for long-term infrastructure investment (below Singapore, but above UAE). Infrastructure spending is expected to remain the major engine of the country’s growth potential, with the focus on major projects in education, health, infrastructure, transportation, and large-scale development projects related to the 2022 FIFA World Cup.
Sectors such as construction, manufacturing, transport and communication, trade, hotels and restaurants, and public services will continue to expand, though delays are expected during the current period of lower oil/LNG prices. The real estate sector will also grow on the back of large infrastructure development, thus increasing overall employment and additionally boosting domestic demand. Domestic consumption will be additionally underpinned by rapid population growth (+9.7% yoy in July 2016), largely associated with a strong influx of foreign workers keeping local demand elevated and benefiting B2C companies.
According to CEEMEA Business Group, infrastructure spending in Qatar could reach $220bn over the next 10 years (provided there are no nasty surprises in terms of LNG prices and in terms of securing external debt finance). Investment priorities are centred around several major projects linked to the 2022 World Cup, the $8bn+ Doha port project, a $30bn+ railways project, and construction of the Doha airport, estimated at over $17bn.
Overall state spending has become more cautious compared to previous years when it was growing by an average of 20% p.a. over the past five years.
The 2016 state budget of nearly $56bn targets a deficit of $12.8bn in 2016 or 4.8% of GDP. This is the country’s first fiscal deficit in 15 years ($9bn in Eurobonds were raised in May). The government plans to cover the deficit by local and foreign borrowing, not by using its financial reserves – the oil price assumed in the 2016 budget is 48 $/b.
Last year’s budget was set at $60bn and this suggests that public spending will fall by some 7% in 2016 (spending on health care facilities was cut by two thirds for example). Petrol subsidies were cut in January 2016, and gas and electricity prices were also increased.
Health, education and infrastructure account for a huge 45% of total budget spending. Around 25% of budget spending should be used to finance projects in infrastructure which suggests that the construction sector will continue with some expansion in 2016, but companies are likely to face delays when collecting money.
Some news suggested that envisaged 2016 spending on public buildings (i.e. schools, hospitals etc.) had been revised downwards.