Qatar Economy on a right track

 

Non-oil and gas sector to drive growth

 

Business conditions across Qatar's non-oil and gas private sector improved once again in August 2018. The headline seasonally adjusted Qatar Financial Centre PMI – a composite gauge designed to give a single figure snapshot of operating conditions in the non-oil and gas private sector – softened to 50.4 in August, from 52.0 in July, partly reflecting a slight fall in output. The figure remained in positive territory, however, and stretched the current phase of expansion to 13 months.

Qatar has attained a significant progress in its efforts to diversify economy in the past five years. During 2013-2017, the economy of the State of Qatar has recorded a compound annual growth rate (CAGR) of 2.8%. This period has been characterized by the maturation of Qatar’s oil and gas mega projects and the moving towards a more diversified economy, fundamentally in sectors like transportation and storage, construction, financial and insurance, real estate, and human health and social work activities. The 10% (nominal GDP) growth in 2017 compared with 6.2% fall in previous year shoulders importance as it shows that this sector has successfully overcome the challenges posed by the blockade-imposed siege countries on Qatar on June last year partially amid the recovery in the oil and gas prices.

The Non-mining and quarrying sector have been the engine of the economy growing at a CAGR of 6.8% during the period 2013-2017, primarily due to construction activities (CAGR 22.2%), human health activities (CAGR 10.8%), financial and insurance activities (CAGR 9.6%), and real estate activities (CAGR 7.6%). The share of this sector on nominal GDP increased from 44.3% in 2013 to 67.7% in 2017. 

Due to the impact of lower international prices for oil and gas products, the Mining and quarrying sector has witnessed a decrease in its contribution to GDP compared to the peak in 2013 (55.7%), representing 32.3% of nominal GDP in 2017. 

During Q1 2018, the Mining and quarrying activities share in GDP declined further to 31.8%, and the sector recording a decline of 5.2% in Q1 2018 from 14.2% rise in Q4 2017. On the other hand, the non-mining and quarrying activities share in GDP increased to 68.2% in Q1 2018 from 66.7% in Q4 2017. The Qatar government’s continued support has made its private sector strong and has encouraged entrepreneurial essence in the country.

According to the latest QFC Qatar PMI data, despite the rate of expansion easing to a one-year low, growth of new business remained robust overall whilst job creation accelerated to a survey-record high amid elevated sentiment across the sector. August's survey data signalled a further improvement in new order inflows. Although the rate of growth eased, it remained solid overall. Anecdotal evidence suggested that the latest increase was linked to promotional activity and new product launches.

In response to increasing new orders and solid business confidence, firms upped their payroll count at a survey-record pace. The rate of job creation was marked overall, with the latest increase extending the current phase of growth to four months.

Prices pressures faced by businesses fell in the latest survey. In fact, the drop-in input prices was the fastest since the survey's inception in April 2017. Survey data suggested that easing capacity pressures at suppliers were partly linked to the fall in input prices. Meanwhile, delivery times improved at a marked rate. 

Despite softening to a three-month low in August, positive sentiment towards future growth prospects among Qatari non-oil and gas private sector firms remained strong overall.

The near-term Qatar growth outlook is broadly positive, said IMF. It further stated, "overall, GDP growth of 2.6 percent is projected for 2018. Inflation is expected to peak at 3.9 percent in 2018—as the impact of the value-added tax being introduced during the second half of 2018 would mostly be felt in that year—before easing to 2.2 percent in the medium term. The availability of significant external and fiscal buffers and the strong financial sector should enable the country to withstand downside risks, including lower-than-envisaged oil prices, tighter global conditions and an escalation of the diplomatic rift".

The non-mining and quarrying sector is likely continue to be the key growth driver, as government investments in the run up to the 2022 World Cup is heavily focused on infrastructure development. The Manufacturing sector will also continue to contribute to the growth of the non-mining sector as Barzan project is likely to start production by the end of 2019 or the beginning of 2020. At the same time, the non-mining sector will benefit from population growth, the development of the new economic zones (meant to attract businesses to Qatar) and infrastructure, among other developments taking place in the country in the short-term.