By Santhosh V Perumal
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Increasing pressure within Qatar’s housing market is a major concern and the country’s inflation is expected to be “the highest” in the Gulf region, according to Standard Chartered Bank.
As construction peaks and population rises, Doha’s inflation may see a progressive hardening in the short to medium term, a Stanchart economist told a media roundtable yesterday.
“Inflation in the GCC (Gulf Co-operation Council) has been picking up. The UAE and Qatar are seeing some of the highest inflation, driven by tightness coming out of housing market,” Stanchart senior economist (Market Research, Middle East and North Africa), Shady Shaher said.
For Qatar, Stanchart expects an inflation rate of about 5% this year, while it may be about 4.5% in the UAE and a slightly moderate 2.4% in Saudi Arabia.
Shaher said that for 2015 Qatar would potentially see 6% to 6.5% inflation, the UAE to breach the 5% level and Saudi Arabia to be around 4% as housing pressure was muted there.
Qatar, he said, had already started seeing pressures build up within the housing market as population had been on the rise. Between September 2014 and 2013, the population is estimated to have grown by about 7.8%.
In Qatar Economic Outlook, the Ministry of Development Planning and Statistics had said domestic inflationary pressures were expected to heighten over the rest of 2014 and in 2015 on strong domestic demand.
Fast rising rents and costlier furniture and transport led Qatar’s inflation rise 3.6% year-on-year in September, according to the ministry.
The rent, fuel and energy group, which is the most influential and carry the maximum weight of 32.2% in the consumer price index basket, recorded an increase of 8.1% year-on-year in September 2014. The index was up 0.6% from the previous month’s level.
After eliminating the effect of rent, the overall index was up 0.2% from the previous month’s level and showed an increase of 1.9% when compared to September 2013, said the ministry figures.
According to QNB projection, the country’s inflation is expected to rise to 3.8% in 2014 as higher infrastructure spending will result in a large inflow of workers, putting pressure on housing and prices.
Stanchart’s inflation expectations are higher than the Ministry of Development Planning and Statistics’ 3% and 3.4% projection in 2014 and 2015 respectively.
“We (also) expect that in the long run, construction sector will pose risks to inflation in Qatar. Given the scale of projects in the pipeline, there are logistical challenges and rising demand for construction materials across the GCC,” Shaher said.
Qatar’s construction inflation could peak to 18% during the World Cup building boom between 2016 and 2019, potentially adding billions to the cost of development and overheating the economy, a report from E C Harris said.
The potential overheating of the construction sector has been exacerbated by the advancement of deadline of the new seaport by 10 years as well as Dubai’s 2020 World Expo, according to market sources.
“The substantial demands placed on materials to support Qatar’s major infrastructure programmes are expected to generate inflation in construction costs that could affect overall costs of project delivery,” the Ministry of Development Planning and Statistics had said.
‘Oil prices will bounce back to $100 a barrel’
Oil prices, which are at its low of $86 a barrel, is expected to rebound to more than $100 on increasing demand, especially from the emerging market, according to Standard Chartered Bank. “Our view is that the current trend in oil price is a short-term phenomenon and it will bounce back to $100 level by the first quarter of next year. Demand will start picking up again; particularly out of emerging markets,” Stanchart senior economist (Market Research, Middle East and North Africa) Shady Shaher said. The current trough in the oil market has been due to increased supply from the US and improved efficiency in Germany and Japan. “Qatar, the UAE and Saudi Arabia have sufficient reserves and central banks could easily draw on them, should the oil prices to fall further,” he said.
Despite the current softening, project awards have been on the rise and the bank has not come across any instance where the governments have scaled down their investments due to the falling oil prices, according to Marios Maratheftis, managing director, head of Macro Research, Stanchart.
