*Researcher sees acceleration in Qatar’s headline growth to 3.4% next year

Fitch Solutions is “more optimistic” about Qatar’s growth in 2021 due to favourable base effects, preparations for the 2022 FIFA World Cup and higher natural gas output.

While Fitch holds a “pessimistic” view about activity in 2020, it expects that Qatar's economy will “bounce back” in 2021 with an expected headline growth of 3.4% next year.

The following factors will support the acceleration in Qatar’s headline growth to 3.4% in 2021, Fitch Solutions said in its latest economic update.

• Base Effects: Business activity will experience favourable base effects throughout most of 2021 as Covid-19-related restrictions are lifted.

• 2022 FIFA World Cup: The world cup will prompt businesses to expand operations and output in anticipation of a large increase in tourism-driven demand. Business sentiment will therefore strengthen, while retail activity and employment will rise.

• Hydrocarbon production: Fitch Solutions expects that natural gas production will grow by 4% in 2021 as external demand begins to pick up again and global growth returns to positive territory.

Fitch Solutions noted that a large (mostly monetary) stimulus (12.3% of GDP) will facilitate a speedy recovery once Covid-19-related disruptions to activity dissipate and the government lifts the social distancing measures.

Of these measures, the most significant include a six-month grace period for loan installments (from the private sector) and ample liquidity injections into the banking sector by the Qatar Central Bank.

“While we do not think that these measures will fully offset the impact of the virus on business activity, they will probably be enough to help provide short-term relief and avoid large-scale bankruptcies in the next few months,” Fitch Solutions noted.

The researcher, however, forecasts that the Qatari economy will “shrink” by 2.8% in 2020. This would be significantly worse than both the 0.2% fall in output recorded in 2019 and its previous 2020 growth forecast of 2.9% expansion. The “sharper contraction will be driven by subdued” non-hydrocarbon activity.

The Purchasing Managers' Index (PMI) came in at ‘39.0’ in April – the lowest-ever reading of the indicator – pointing to a “deterioration” in business sentiment and activity.

This was almost certainly due to the outbreak of Covid-19 and social distancing measures subsequently introduced by the authorities to contain the virus, such as the suspension of public transport, a ban on public gatherings, and the closure of schools and non-essential businesses in mid-March.

Meanwhile, the hydrocarbon sector – which accounts for half of total GDP – will do little to support growth in the near-term. While opening of the Barzan field will increase natural gas production capacity in the months ahead, the researcher now expects that total output will remain “largely flat” as the global recession filters through to lower external demand for energy.

Fitch expects the construction and tourism industries to be the “hardest-hit” in the coming months. The government may postpone QR30bn in capital projects – most likely a bid to contain pressures on the budget in the face of collapsing oil prices – implying a “pronounced drop” in capital spending.

Meanwhile, a government-imposed international flight ban – introduced as part of the social distancing measures in mid-March – will prompt a sizeable decline in tourist arrivals this year, it said.


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