Underpinned by hydrocarbon exports, Qatar will post an impressive 20% real GDP growth this year, Samba Financial Group has said in an economic bulletin. In 2012, however, Samba projects Qatar’s real GDP growth to slow down to about 6% with the non-hydrocarbon sector becoming the engine of growth. For 2012 and beyond, Samba expects Qatar’s real GDP growth to hold at around 4-5% a year in line with National Development Strategy (NDS) and be supported by the massive $226bn planned investment programme including $95bn from the government. “Hydrocarbons will continue to dominate and underpin national prosperity but, with the completion of the last of the major hydrocarbons projects in 2012, the emphasis of the NDS is on developing the non-hydrocarbons sector,” said the Economics Department of the Riyadh-based Samba Financial Group. “Its seems clear that revenues from hydrocarbon exports will make Qatar a wealthy country, ensuring sustained fiscal and current account surpluses and a further build-up in external assets even under adverse oil and gas price assumptions,” Samba said in its recent economic bulletin. “Managing such wealth, promoting economic diversification and completing large scale infrastructure investments in time for the 2022 World Cup will present challenges. But the NDS provides reassurance that policy makers are prepared, and will take steps to mitigate potential inflationary pressures and to avoid wasteful spending.” Recent data confirm the continued increase in Qatar’s hydrocarbon output and point to improving conditions in the non-hydrocarbon sector which should receive a further boost from the expansionary budget announced for 2011/12. The private credit growth is reviving, helped by recent interest rate cuts, and the stock market returned to positive territory in May. Inflation is on the rise, but remains muted overall (1.7% in March), due to sustained weakness in rents. That said, reports suggest that the real estate sector has begun to stabilise. The NDS also confirms what Samba said it has already noted that once the 20-year hydrocarbon investment programme comes to an end (around 2012), real GDP growth rates will slow sharply from the high double digits of the last decade. However, at a projected 4-5% a year, post-2012 real GDP growth will remain solid, and in nominal terms the economy will remain highly prosperous with national income conservatively projected to reach $213bn by 2016 (IMF projects nominal GDP of $224bn by 2015) with an estimated per capita income of over $114,000. A key factor in the medium-term projections is the recognition that the contribution from the hydrocarbon sector to growth will drop off dramatically as the 20 year gas based investment programme comes to an end and the last of the major projects come on stream in 2012, Samba said. This then leaves the non-hydrocarbon sector as the driver of future real GDP growth. In this respect, both the Qatari authorities and the IMF are projecting that expansion in non-hydrocarbons GDP will remain robust at around 9% a year through 2016. It is noteworthy that this is expected to be achieved in an environment of much slower population growth than in the past, with the NDS projecting that growth will slow to around 2% a year, bringing the population to just under 1.9mn by 2016. This has important implications, as capacity in some areas (especially real estate) is already running ahead of demand, and future investments will need to be tempered to ensure they are able to generate a return. Achieving the projected rates of growth in the non-hydrocarbon sector will depend heavily on the successful implementation of the NDS which aims for greater diversification of the economy. In the short-term, prospects for strong non-hydrocarbon growth are clearly favourable given already planned large-scale public infrastructure investments which will support the construction sector and have multiplier effects throughout the economy.

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