Global Investment House
Qatar Economy

Since 2011, Qatar has successfully completed its 20-year investment plan to commercialize its natural gas reserves, the third largest globally with 25tn cubic meters or 13.0% of the world’s total proven reserves. This has led Qatar’s economy to almost double over the last four years to USD192.3bn as of 2011. Qatar's economy is expected to moderate to a steady rate of 5.2% in 2013 (6.6% in 2012), following record double-digit growth in 2006-2011. The non-oil & gas sector, which is estimated to expand 9.9% in 2012, is expected to drive growth in Qatar's economic expansion during 2012 and going forward.

Non-Oil & gas sector to drive the economy in future

Oil & gas sector was significant contributor to the overall GDP at 42.6% in 2012. LNG production more than doubled in 2009–2011 to 74.8mn tons. With an additional 3.9% increase expected in 2012, LNG production is expected to stabilize at 77.0mn tons till 2017. Crude oil production, after a slight 0.5% increase expected in 2012, would continue to decline at CAGR of 5.7% to 559 thousand b/d in 2017. Qatar has placed a self-imposed moratorium on the development of the new hydrocarbon projects until 2015 to assess the sustainability of increasing production and carry out a comprehensive study of its North Field.

Nevertheless, the significance of the oil & gas sector has been waning in recent times, as the government’s efforts to diversify the economy away from its reliance on hydrocarbons are coming into effect. Share of the non-oil & gas sector in the overall economy increased to 57.4% in 2012 from 40.7% (2011). Focus on the manufacturing sector, particularly in the manufacturing of petrochemicals, and the roll-out of infrastructure projects in the run-up to the 2022 World Cup, would continue to drive economic diversification and growth of the non-oil sector.

Infrastructure development related to 2022 World Cup will drive growth

Qatar plans to invest USD200.0bn over the next 10 years as part of its preparation for the 2022 FIFA World Cup, and a significant part (USD140bn) would be spent in the first five years in projects such as new airport, seaport, and a rail and metro system. These projects are expected to be complemented by additional investments from Qatar petroleum (USD50bn) and other public and private firms (USD100.0bn). Furthermore, the Qatari government aims to increase spending on public administration, healthcare, and education as part of its new 2013–14 budget, including 21% higher capital spending and 16% higher current spending than in the previous budget.

Excess supply in housing market contain inflation

Consumer price index stayed constant in 2012. Small increases in the international commodity prices, coupled with excess supply in the housing market, helped limit the inflationary pressures in 2012. Large salary increases for public sector employees in 2011 and expansionary fiscal and monetary conditions bolstered liquidity in the market, adding to the increase in CPI. Rental costs have shown steady signs of revival in the recent months, becoming less of a cushioning factor in containing inflation. Rental costs bottomed out in April and May 2012, and by August, climbed above their year-earlier level, adding about 0.5 percentage points to inflation in 2012. Rest of the components in CPI, with the exception of entertainment, recreation, and culture, trended downward in 2012, restraining inflation.

Inflation is expected to accelerate to 3.0% in the next two years and increase further to 4.0% every year till 2015 and is forecasted to grow at 5% for the rest of the forecasted period till 2017. Residential rents would be the key swing factor in the years ahead. Increasing expatriate population growth from 2022 World Cup-related projects and supply-side factors in the form of income and credit growth are expected to add upward pressure on housing costs. A strong US dollar and declining international food prices may keep a lid on imported inflation while housing market recovers.

LNG exports provides key support to positive current account balance

Qatar reported another trade surplus during 2012, as exports rose 17.0% to USD131.5bn, while imports increased at a slower rate of 14.3%. Trade surplus grew 17.8% in 2012 in addition to the 62.2% increase registered in 2011. Exports continued to be driven by LNG, which represents over 60.0% of the total exports.

The current account surplus increased 19.9% YoY to USD61.3bnin 2012, led by high gains from trade surplus, which offset non-merchandise deficit. Similar to the trade surplus, the current account surplus is expected to decline to USD57.1bn in 2013, as rising imports and non-merchandise outflows drag down surplus.

Endowed with the large surplus from oil & gas exports, Qatar has continued to acquire foreign assets. In addition, repatriation of proceeds by foreign corporations, following the completion of LNG infrastructure expansion, led foreign outflows. Foreign outflows (net) were USD1.5bn in 2012 due to a USD1.8bn outflow, though Qatar received USD324.0mn of foreign investment. Portfolio investments remained volatile, reflecting the general weakness in the financial markets.

Lowest unemployment among GCC countries           

Qatar has the lowest unemployment rate among GCC countries. Total unemployment stood at 0.3% in 2012, same as six years ago. Unemployment among Qatari nationals was higher as compared to the expatriates, primarily due to a high level of unemployment among women nationals. Unemployment among women stood at 2.8% in 2012, down from 4.6% in 2011, while 0.1% of male labor force was unemployed in 2012, down from 0.5% in 2011. Reforms in the education sector and labor policy, as part of the Qatar National Vision 2030, are expected to help fix the unemployment issues among Qataris.

Released by Global Investment House.