Qatar: Year In Review 2011

Having ended 2011 on a high, with its economy growing at break-neck speed, inflation under control and a stepped-up programme of infrastructure investments being rolled out, Qatar is well placed to continue similar growth this year. Yet with the spectre of recession hanging heavy in the air in Europe, and a scaling back of expectations in some major Asian economies, the country may find that in 2012 many of its achievements are consolidated rather than eclipsed.

Final figures have yet to be collated, but by any standards 2011 was a stellar year for the Qatari economy, with GDP rising by between 15% and 19%, according to various estimates, with even the low end of the scale being a faster rate than any other country in the world.

However, a recent report released by the International Monetary Fund (IMF) said that, while the outlook for the country’s economy is positive, the real GDP growth rate is projected to moderate to 6% this year, a third of what the fund estimated the 2011 rate to be.

This slowdown is not a result of any structural weaknesses in the Qatari economy, the IMF said in its report issued in mid-December, but was instead due to the country having completed its latest cycle on expansion for its hydrocarbons industry, which has now reached the production levels set for it under Doha’s long-term economic development plans.

The IMF is actually more upbeat than Qatari officials, with state agencies having predicted GDP would expand by a more modest 5.1%, following on from an estimated 15% in 2011.

Importantly, for the government’s programme to diversify the economy away from a dependence on energy, the outlook for the oil and gas sector is increasingly positive. While the hydrocarbons component of the economy will expand, with growth estimated at around 3% next year, the non-hydrocarbons sector is forecast to grow by up to 9%.

Much of this predicted growth is set to come from investments in infrastructure and social services facilities, with plans having been announced that up to $150bn will be spent on such developments in the next five years or so. While some of this money will be directed towards the requirements of hosting the 2022 FIFA World Cup, a large slice will be allocated to strengthen Qatar’s transport and logistics backbone. These investments will be a driving force for the economy for some years to come.

While the growth rate is expected to ease, prices could be set to rise. Heading into 2012, Qatari officials will no doubt be keeping a close eye on inflation, with consumer prices tipped by the IMF to rise by around 4%. With the economy still booming, and wages and disposable capital on the rise, growing demand could fuel price increases if there are any bottlenecks in the supply chain, or if the flow of liquidity is not in balance. If inflation does heat up to the rate expected this year, it will be double the 2% that price rises were running at as 2011 came to a close.

It was not all good news for the Qatari economy in 2011. Qatar’s capital markets suffered something of a setback late in the year, when the application by the country’s stock exchange to be granted emerging market status was turned down by the Swiss-based firm MSCI, which determines classifications.

A revised status would have helped the bourse attract increased overseas investment and help stimulate domestic activity, which has slowed in recent years, with trading volumes in 2011 below that of 2009, despite the broader economy’s strong performance.

Currently, the Qatar exchange has frontier status, though MSCI has made it clear it is open to reviewing its decision when the country’s market implements further reforms, especially those that are aimed at safeguarding investors. According to MSCI, in a statement issued mid-December, Qatar’s bid was hampered by the limitations on foreign holdings in locally traded stocks, with an easing on restrictions needed before any upgrade could be made.

There were also suggestions that the economy could come under pressure if some of its major export markets slipped into recession, a development that, despite Qatar having little control over, would affect demand for gas and oil. This demand remained strong throughout 2011, despite the sluggish performance of many European countries, with the thriving Asian economies taking up any slack.

Yet this situation could change in the new year, with some forecasts that the Asian tigers, too, could see declining growth, while many European economies could shift gears from sluggish to reverse. A result of this could be a fall in energy demand and consequently in prices, which would impact Qatar’s revenue stream.

However, strong fiscal reserves, and a broad based export market, with gas sales to an extended network of clients worldwide, should see Qatar easily ride out any downturn in the global economy in the coming year and position itself to take advantage of the recovery when it comes.