Qatar’s real GDP is expected to recover in 2017-18 with the non-hydrocarbon sector continuing to be the main driver. The GDP is forecast to grow by a 3.8 percent and 4.1 percent in 2017 and 2018, respectively, QNB noted in its economic commentary yesterday.
Citing Qatar’s Ministry of Development Planning and Statistics’ (MDPS) latest data, QNB said growth in the first three quarters of 2016 averaged 2.3 percent versus the same period a year earlier. “We expect growth to pick up going forward driven by the non-hydrocarbon sector as a result of a fading drag from manufacturing, rising government capital spending and high population growth”, QNB research note said.
The hydrocarbon sector recovered from a contraction of 2.0 percent year-on-year in the first half of 2016 to grow by 2.7 percent year-on-year in Q3 2016. Data shows that crude oil production, which accounts for around one third of the hydrocarbon sector, moved in the opposite direction, rising in the first half and falling in Q3 year-on-year. Natural gas and related liquids outweigh crude oil, accounting for two thirds of the hydrocarbon sector.
“We can, therefore, infer that the main driver of hydrocarbon GDP has been a dip in natural gas production in the first half of 2016 followed by a recovery in Q3. This is likely a result of routine maintenance carried out on some of Qatar’s liquefied natural gas trains during the first half of the year, with production on these trains since recovering to capacity in Q3”, QNB analysts said.
Growth in the non-hydrocarbon sector slowed to 4.7 percent year-on-year in Q3 2016 from 5.6 percent in the first half of 2016. The main drag on growth was the manufacturing sector, which contracted by 1.3 percent year-on-year. Going back to 2014, the drop in oil prices in the middle of that year led to the cancellation of a number of petrochemical projects, which were the main contributor to manufacturing growth. As a result of the drop in investment into petrochemicals, the performance of the manufacturing sector has been in decline since 2014. However, a number of other non-hydrocarbon sectors maintained relatively high growth rates in Q3 2016.
The construction sector was the main driver, growing at 12.4 percent year-on-year in Q3 and contributing 1.9 percentage points (pps) to non-hydrocarbon GDP growth.
QNB expects real GDP growth to recover in 2017-18 with the non-hydrocarbon sector continuing to be the main driver of growth for a number of reasons. First, the slowdown in the non-hydrocarbon sector is partly attributable to a drag from manufacturing, which we expect to fade.
Second, government investment is expected to continue to drive growth. Third, government investment continues to attract workers to Qatar who require a range of services and increase aggregate demand in the economy.
Finally, the outlook for oil prices has improved markedly. Oil prices are currently $55/barrel, 17 percent higher than the average of $47/b in Q3 2016.
“We expect oil prices to continue rising to the $60/b level if the production cuts recently announced by Opec and non-Opec are fully implemented. Higher oil prices should boost government revenue and embolden capital spending plans ....".
Compared to 2016, QNB expects a continued positive trend in oil prices in 2017-18, which should support a recovery in growth.
