November 21, 2008

Qatar is the fastest growing economy in GCC – Report

No GCC country has a faster expanding economy than Qatar, with real GDP growth expected to achieve 14.3% in 2008 and 13.5% in 2009. Indeed, the rate has been close to 10% for 7 years now, during which time the population of Qatar has risen to 900,000 or around 25% of whom are Qatari citizens, with the rest a mix of expatriates from various countries.

Qatar’s economy is expected to remain buoyant, as Qatar’s liquefied natural gas industry takes hold and additional oil capacity leads to increased export volumes. Output of associated condensates natural gas condensates will also increase, along with other gas-based industrial ventures, particularly in petrochemicals. Further economic growth is being fueled by an ongoing rise in domestic demand, mainly due to expansion in the construction and financial services industries.

Government expenditure will continue to grow strongly in 2008, as capital programs in education, health and transport give the economy a boost. This additional spending also triggers more private consumption, since 96% of Qatari workers are employed by the state. As far ahead as 2012, the economic outlook is very strong, with our forecast for real GDP growth projected to average over 11 percent per annum. Fiscally, Qatar will register another surplus in 2008, even on an oil-price assumption of just USD 45 per barrel.

But success comes at a price. Due to sustained expansion, as well as demand outpacing supply, serious constraints on capacity have created inflationary pressures. The rise in inflation in 2007 was again due largely to escalating rents as a result of housing shortages, as well as high aggregate demand, and rising wages for both nationals and expatriates.

Although supply side pressures could subside in 2008, inflation is still expected to reach 11.5 percent. In 2009, we expect the supply of housing to achieve a degree of equilibrium and more new infrastructure to come on stream. As a result, inflation is expected to fall into the high single digits.

The introduction of a 10% cap on annual rent increases for a 2 year period was not especially successful in mitigating rental inflation and it was phased out in February 2008. Similarly, both Abu Dhabi and Dubai have been unable to control rent rises through capping schemes. But the underlying problem of real estate inflation in Qatar will be addressed when additional housing units come on to the market. The September 2007 price freeze on wheat flour and wheat products may even add to inflation, as price freezing could increase demand from consumers, yet discourage suppliers.