Non-Hydrocarbon Economy Driving Growth
BMI View: Qatar's economic growth will be largely driven by the non-hydrocarbon sector over 2013, with expanding domestic consumption and progress on infrastructure investments fuelling economic activity . However, weaker performance in the hydrocarbon sector will drag down overall growth, and we expect Qatar's real GDP to expand by 5.0% in 2013, down from an estimated 6.0% in 2012 and a yearly average of 15.6% during 2007-11.
We expect Qatar's economic growth to be largely driven by the n on-hydrocarbon sector over 2013. Expanding domestic consumption and progress on infrastructure investments, both supported by public spending, will help to stimulate economic activity. However, growth in the hydrocarbon sector is set to remain tepid throughout the year , with the moratorium on new liquefied natural gas (LNG) capacity until 2015 limiting the prospects for any strong expansion in production . We forecast overall growth in real GDP to reach 5.0% in 2013, down from an estimated 6.0% in 2012 and a yearly average of 15.6% during the 2007-11 period, when the hydrocarbon sector was in full swing.
|Qatar - Real GDP Growth, %|
According to latest data from the Qatar Statistics Authority (QSA), real GDP growth slowed to 3. 9% y-o-y in the third quarter of 2012, from 7.9% and 5.0% in Q112 and Q212 respectively. For the second consecutive quarter, t he hydrocarbon sector (mining and quarrying) was the worst performing sector of the economy, shrinking by 0.8% y-o-y in real terms. The non-hydrocarbon economy was led by the manufacturing sector ( composed for the most part of do wnstream hydrocarbon processing and the production of chemical products , steel and cement), which grew by 13.6% y-o-y. Construction and transport, which benefit from substantial linkages and are the main beneficiaries of government spending , both expanded by 9.4% y-o-y.
|A Shrinking Hydrocarbon Sector|
|Qatar - Real GDP Growth By Sector, % chg y-o-y|
The results of the Dun & Bradstreet Business Optimism survey for Q113 provide support to our view that the non-hydrocarbon sector is set to pull the economy forward over the medium term. The composite index for the hydrocarbon segment fell to 15, down from 17 and 29 in Q412 and Q112 respectively. The indices for the profitability and 'number of employees' parameters fell to 22 and 15 respectively, down from 48 and 40 in the previous quarter. By contrast, the composite index for the non-hydrocarbon sector rose to 45 in Q113, up from 38 in Q412 and 40 in Q112. 48% of non-hydrocarbon companies stated they would invest in business expansion (with 33% unsure), while 42% of respondents do not anticipate any negative factors impacting business operations, a share which reaches as high as 60% within the trade and hospitality sector.
|Stronger Non-Hydrocarbon Optimism|
|Qatar - Business Optimism Index, Hydrocarbon and Non-Hydrocarbon Sectors|
Private Consumption Outlook: We expect private expenditure in Qatar to continue growing at a brisk pace over the year , and project growth of 8.0% in that component . Although the effects of raises to the salaries and pensions of public sector workers , approved in September 2011, are waning, an array of structural factors is set to leave household spending on an expansionary path over the medium term. Demographics remain largely in Qatar's favour: the total population reached 1.9mn in January 2013, up by 8.2% y-o-y (or by 7.0% y-o-y on a 6-month moving average basis, which reduces seasonal volatility). As more expatriate workers enter the country in preparation for the 2022 FIFA World Cup , the consumer base is set to expand further. The unemployment rate, at 0.5%, remains amongst the lowest in the world. High per capita income generates strong demand for retail and luxury products - with sales figures for Rolls-Royce Motor Cars Doha , for instance, up by 20% y-o-y in 2012.
|Qatar - Total Population, mn|
Commercial bank lending grew by 26.0% over 2012, providing further support to the economy . We expect the Qatari banking sector to continue expanding over 2013, with limited threats to stability over the medium term (see our online service, November 29 2012, 'Banking Sector: Limited Risks To Stability In 2013') . Consumption lending has begun to recover after a slump in Q412, rising by 4.5% y-o-y in December 2012.
|Qatar - Consumption Lending|
Consumer price inflation, although set to trend higher over the year, should remain limited by the government's sustained use of large-scale subsidies. We forecast inflation to average 3.5% throughout 2013, up from 1.9% in 2012 (see our online service, November 20 2012, 'Inflation To Increase In 2013') . Rental prices have seen a gradual recovery throughout H212, with the Qatar Central Bank's (QCB) real estate price index showing a 7.3% y-o-y increase in September 2012, the latest month of data available. Credit dispensed to the real estate sector also increased by 12.3% in 2012, and strong population growth should provide scope for a marginal increase in rental rates in the second half of this year. However, the outlook for the property market remains fragile in our view , and r eal estate prices are likely to continue suffering from excess capacity, with more residential properties scheduled to be released to the market throughout the year .
|A Narrowing Differential|
|Qatar - CPI, % chg y-o-y|
Government Consumption Outlook: Fiscal policy is set to remain expansionary over the medium term, and we project government consumption to grow by a robust 12.0% in 2013. Qatar posted record high revenue collection in the second quarter of FY2012/13 (fiscal year running from April to March), although we retain the view that the country's fiscal balance will narrow steadily over the next few years in light of lower levels of hydrocarbon income (see our online service, February 18, 'Fiscal Surpluses On The Decline') . The FY2012/13 budget increased allocated expenditure by 27% y-o-y, with current and capital expenditure up by 42% and 25% respectively.
|Public Sector Lending Outperforming|
|Qatar - Credit By Sector, QARbn and % chg y-o-y (RHS)|
Qatar's infrastructure investments are largely underpinned by government spending and public sector firms, with the state's National Development Strategy planning for an average of 40% of the state budget to be used to fund infrastructure projects over the 2011-16 period. Indeed, new commercial banking credit has increasingly been diverted towards the public sector (state-owned enterprises and government institutions), whose share of total loans has risen to 43.0% in December 2012, from 37.0% on the same point a year earlier.
|A Diminishing Share For The Hydrocarbon Sector|
|Qatar - GDP Sector Composition, Q312|
Work is expected to accelerate on a number of projects throughout the year. Construction work for the US$37bn Qatar Railways Development project, aimed at implementing an integrated rail network in the country , will begin by the end of 2013, while tenders for lines of the 130-kilometer Doha Metro system will be awarded throughout the year . The next few months should also see the groundbreaking of Qatar Foundation's stadium, as well as the first phase opening of the Hamad International Airport in Apr il (with a 28-million passenger capacity), which will replace the current Doha International Airport. We forecast the growth of fixed investment to reach 10.0% this year.
|In A Slump|
|Qatar - Crude Production|
Net Exports Outlook: We see Qatari exports and imports growing by 1.2% and 11.0% over the year, respectively. We expect export growth to be drastically lower than in previous years , in light of the weak performance of the hydrocarbon sector. Crude oil production averaged 0.75mn bbl/d in 2012, compared to 0.82mn bbl/d in 2011, while December output was 9.8% lower y-o-y. At the same time, Qatar's moratorium on the development of new hydrocarbon projects until 2015 (self-imposed in 2005 to allow time to study field development optimisation) limits the potential for growth in LNG output over the medium term, with our Oil & Gas research team forecasting production of gas to expand by only 3.8% this year, with exports rising by 1.8% . Non-hydrocarbon exports remain limited at this stage, accounting only for an estimated 12.7% of total export value in 2012.
Imports will be supported by rising domestic consumption , the strong growth of the expatriate population, and the requirements of the construction sector. Qatar's limited domestic manufacturing capacities ensure a continued need for building materials, machinery, and capital goods from abroad, contributing to rising construction costs. According to recently released National US-Arab Chamber of Commerce data, Qatar's imports of US goods rose by 27.8% y-o-y in 2012, with the top three sectors consisting of transportation equipment (accounting for 65.6% of the total), non-electrical machinery, and computer and electronic products.