Qatar’s hydrocarbon sector returning to growth in the second half of this year will have a “positive” impact on the country’s total GDP growth, BMI Research said in a report yesterday.
“Hydrocarbon production returning to growth and continuous investment in infrastructure projects will support Qatar’s economic growth,” the Fitch Group company said and noted that the country would continue to outperform its Gulf peers.
According to BMI, Qatar’s hydrocarbon GDP (gross domestic product) contracted by 2.1% in the first half of 2016 amid falling oil production between January and April. But the Fitch Group company does not expect this decline to be sustained, with its “Oil and Gas team” forecasting hydrocarbons production to stay flat in 2016 and to grow by 1.8% in 2017.
Movements in crude oil production underpin this view, growing by an average of 0.5% y-o-y (year-on-year) between July and September 2016, compared with a 2.4% decline over January-June, mostly due to circumstantial factors.
“The oil price rebound since the start of the year will support consumer and business confidence over the coming quarters,” BMI said. Brent prices have rallied more than 70% since the $29-per-barrel-low reached in January 2016, trading at an average of $51.6 in October 2016.
Given Qatar’s dependence on hydrocarbons, the environment of low oil prices has forced the government to undertake fiscal consolidation. “With our team forecasting Brent prices to average $55/b in 2017, up from $45.5/b in 2016, we believe that the worst is now past for the Qatari economy,” BMI Research said.
Government-led infrastructure investment for the FIFA 2022 World Cup will support Qatar’s growth pickup in 2017 and beyond, BMI Research noted. This major event is thought as a catalyst for economic diversification in the emirate, with Doha set to become a regional hub for culture, sports, education, and finance. As a result, BMI expects fixed capital formation to expand at a strong pace, remaining the main driver of growth in Qatar.
Nonetheless, BMI cautions that the recovery will be slower than previously anticipated.
The authorities concerned have slowed down investment in secondary infrastructure projects and reduced current spending since the start of the year. Leading indicators are also pointing to a significant fall in confidence. Dun & Bradstreet’s business optimism indices for Q2, 2016 – the latest readings available – for the hydrocarbon and non-hydrocarbon sectors came at their lowest levels since Q2, 2009.
The Real Estate Price Index entered in contraction in August 2016, also pointing to weak confidence. This will result in a protracted period of slower growth, as BMI forecasts real GDP to expand by an average of 3.5% over 2016-2020, down from 7.1% over 2011-2015.
BMI Research also said “the slowdown in economic activity in Qatar will be more important than previously anticipated, with latest GDP figures pointing to a continuous slowdown in non-oil activity.” According to data from the Ministry of Development Planning and Statistics, real GDP growth came in at 2% y-o-y in Q2 16, up from 1.4% in Q1 16. Hydrocarbon activity (accounting for more than 50% of GDP) remained in contraction, declining by 1.2% y-o-y, but showed some improvements compared with Q1,2016.
More worrying, the non-hydrocarbon sector continued to slow down, expanding by 5.5% in Q216 down from 6.2% in Q1,2016. Therefore, BMI Research revised down its real GDP growth forecasts to 2.7% in 2016 and 3.3% in 2017, down from 3.1% and 3.6% previously.
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