Growth outpaced expectations in Qatar this past year, while 2014 is widely expected to see an uptick in economic activity, as the non-energy sector further expands on the back of high levels of infrastructure spending and consumer demand.
Perhaps the most significant event of 2013 was the transition of power from Qatar’s emir, Sheikh Hamad Bin Khalifa Al Thani, to his son, Sheikh Tamim bin Hamad Al Thani, in late June. Sheikh Tamim is expected to follow the policy line of his father, with a focus on economic diversification, underpinned and funded by the country’s natural resources, along with maintaining strong social services.
In the economic sphere, growth gained momentum in the second half of 2013. According to the Ministry of Development Planning and Statistics (MDPS), GDP increased by 6.2% year-on-year (y-o-y) in the third quarter, up on the 6% from the preceding three months, thanks primarily to activity outside the energy industry. The non-mining and quarrying sectors grew by an annualised 9.5% in the third quarter, compared to the 1.8% for oil and gas. The higher rate of economic activity prompted the MDPS to revise its forecast for year-end GDP growth in mid-December, up to 6% from its June prediction of 5.3%.
Rising growth rates forecast for 2014
A report prepared by Qatar National Bank early in the new year forecast that Qatar’s economy would maintain its steady rate of advance, with GDP predicted to increase by 6.8% in 2014, thanks in part to the rising pace of infrastructure spending and private sector activity. Again, much of the growth in the coming year is expected to be driven by the non-energy sector, with increasing investments in infrastructure being one of the locomotives for expansion.
The construction sector, which grew by 13% y-o-y in the third quarter, is set to carry forward this momentum into the new year and beyond, with expansion forecast at 15% or more in 2014. Though not as strong, the outlook for tourism and hospitality, finance, real estate and manufacturing also appears bright. Qatari banks are expected to finance infrastructure development, while at the same time looking abroad for expansion opportunities. Telecoms provider Ooredoo and Al Jazeera are also likely to focus on their international investments.
In the energy sector, output is anticipated to remain steady. Qatar is looking to boost liquefied natural gas (LNG) sales to Europe, where a slowly improving economic outlook combined with some reluctance to further increase reliance on Russian gas could pave the way to higher export levels in the new year.
This potential increase in sales to Europe may counter a possible drop off in exports to other markets in the medium term, as countries such as the US and Australia bring their own LNG export facilities on-line. The latter in particular is perceived to be a potential source of competition, given that it is well-positioned to serve Asian markets, which until now have had few alternatives to Qatari gas. In November Reuters reported that Qatar was looking to secure new long-term deals in Asia by offering heavy discounts on short-term sales.
Inflation steady but pressures building
Inflation edged up toward the end of 2013, hitting 2.8% y-o-y in November, on the back of rising accommodation and energy costs. Though inflation remained relatively subdued in 2013, there could be more price pressures in the coming year and beyond.
Consumer demand is expected to climb, while the boost in construction activity across the Gulf may drive up labour and material costs. Demand could also be fed by an expected number of expatriate workers coming to Qatar, many to be employed on infrastructure developments or projects linked to the FIFA 2022 World Cup, with the influx having the potential to push up rental costs for accommodation and other services.
While Qatar’s preparations for football’s headline event will continue to attract headlines along with large investments in 2014 as work ramps up on stadiums and supporting facilities, far more economic activity will be taking place well away from the pitch as other infrastructure projects are rolled out and consumer demand helps fuel growth in the financial and services sectors.