Qatar’s growth to recover as higher oil prices ease fiscal constraints

 08 May 2017 - 1:23

Qatar’s growth to recover as higher oil prices ease fiscal constraints

The Peninsula

Qatar’s real GDP is expected to rise to 2.6 percent in 2017 and 3.6 percent in 2018 before slowing to 2.7 percent in 2019 driven by the non-hydrocarbon sector as higher oil prices ease liquidity and fiscal constraints and boost incomes.

In the hydrocarbon sector, natural declines at maturing oil fields in 2017 will be more than offset in 2018-19 by initial gas production from Barzan and investment in oil output Oil prices are forecast to recover as the market shifts from excess supply to excess demand in 2017, but prices will be capped by US shale costs, averaging $55/barrel in 2017, $58/b in 2018 and $60/b in 2019, QNB noted in its “Qatar Economic Insight’, yesterday.

Inflation is expected to slow to 0.9 percent in 2017 on falling rents, before picking up to 3.3 percent in 2018 with the introduction of value added tax (VAT) before easing to 2.5 percent in 2019.  International commodity prices tend to pass through to domestic prices with a lag and, therefore, lower commodity prices in 2016 are expected to still depress inflation into 2017, but higher prices this year should push inflation higher in 2018.
The government’s budget deficit is expected to narrow to 1.5 percent in 2017 before switching to a surplus of 1.0 percent and 2.3 percent in 2018-19 on a recovery in hydrocarbon revenue and consolidation of current spending.

The government has announced plans to increase capital spending over the next three years, mainly on projects related to the upcoming World Cup, transportation, infrastructure, education and health.  Revenue should receive an additional boost from VAT in 2018, adding about 1 percent of GDP.

The current account is expected to return to a surplus of 2.1 percent of GDP in 2017 on rising oil prices, but then narrow on high import growth in line with the ramp up in project spending and robust growth in the non-hydrocarbon sector International reserves are expected to be maintained at their current level of around six months of prospective import cover.