Qatar’s economy is set to post near record high growth again this year, after leading the world in 2010, though there are some concerns that this rapid expansion could lead to overheating. Meanwhile, Doha will be keeping a wary eye on the economic health of its major trading partners.
The Qatari economy expanded by a staggering 41.8% year-on-year (y-o-y) in the second quarter of 2011, with nominal GDP rising from $29.7bn in second-quarter 2010 to $42.2bn in the April to June term this year, according to data released by the Qatar Statistics Authority (QSA) at the beginning of October. This massive increase came on top of an 8.8% rise in the first quarter of the year.
“Rising levels in the quantity of gas-related products and high energy prices have been the main drivers of nominal y-o-y quarterly GDP increase,” the QSA said in a statement. “The main contributor was the increase in liquefied natural gas (LNG) and other gas-related products. Condensates and other natural gas liquids showed a major jump following the operation at full capacity of the two new LNG mega trains.”
While the rate of expansion seen in the second quarter is not likely to carry through the rest of the year, Qatar will still record the fastest growth rate of any economy around the world.
In late September, the IMF predicted that the Qatari economy would expand by 18.7% this year, falling back to a more moderate 6% in 2012, in part a result of the completion of a number of high cost state investment programmes.
This high rate of growth will also allow the government to build up its cash reserves, with estimates putting the current budget surplus for 2011 at $8.5bn, the equivalent of 4.9% of GDP in financial year 2011/12, according to a report issued on October 4 by QNB Capital, a unit of Qatar National Bank.
Though this surplus will ease somewhat to $7.5bn in the 2012/13 fiscal year, mainly due to increased outlays, the Qatari budget is forecast to remain well in the black for an extended period, with GDP set to increase by 10% in 2012 and beyond. An earlier study conducted by QNB Capital, carried out near the end of September, said that the national economy would be worth $173bn this year, rising to $197bn in 2012.
Though a strengthening economy is to be welcomed, there are some concerns that Qatar could experience too much of a good thing, with worries that high levels of liquidity could fuel inflation. There may be some truth behind these concerns, with QSA figures issued on September 28 showing that the Qatari consumer price index reached a two-year high in August. Though still at a modest 2.1% y-o-y, this could rise further if consumer demand grows.
The recent decision by the government to raise public servants’ wages and allowances by 60%, with a 120% rise for military personnel, could also prime the inflationary pumps, though the Qatar Central Bank (QCB) has said it will take whatever measures are necessary to drain excess liquidity out of the market should steps be needed to rein in demand-based inflation.
While working from a position of fiscal strength, Qatar is already aware of the possible fallout from a return to global recession. The country’s growth and surplus figures are based on the premise that the world will continue to buy that which Qatar has for sale, mainly gas and oil. At least one IMF official has sounded a note of caution over the potential for an economic downturn in other regions having an impact on Qatar and the other GCC member states.
While the GCC countries have deep fiscal reserves that could help them ride out a new wave of global recession, they are still at risk, according to Masoud Ahmad, the fund’s director for the Middle East and Central Asia.
“GCC countries’ broad international linkages make them vulnerable to spillovers from the global economy,” Ahmad told international media in mid-October.
However, Qatar is better placed in terms of financial reserves than some of its neighbours, even it may have to take measures to protect its economy from any ills suffered by the global banking sector, sovereign debt market or a weakening of emerging markets.
Though care will be needed to manage any fallout from a weakening global economy, the Qatari government has the tools and funds in hand to counter any blips on the economic radar. Having already announced state-backed investments of $95bn between now and 2016, and with expectations that the private sector will also come to the party with up to $130bn more over that time, Qatar will be looking to keep its own economy moving forward, even if those elsewhere stall.