Qatar Business Forecast Report

Hydrocarbon Sector Driving Growth Despite our strong headline real GDP growth forecast of 5.6% in 2009, lower global oil prices and tighter liquidity have fed through into a domestic economic slowdown. This means that we still consider 2010 as a year of 'recovery'. Over the forecast period, growth will be driven by a massive ramping up of oil and gas production. Having fallen from 2008 levels this year, we therefore expect hydrocarbon export revenues to increase every year out to 2013 (barring a massive and unexpected collapse in global oil prices). This should boost the deposit base of the banking sector, allowing for bank loan growth to increase once more. However, this process will take time - we expect banks to remain cautious until H110 at the earliest, which will put a brake on non-oil economic growth. Politically, Qatar is one of the most stable Middle Eastern countries, and we do not expect any change to this state of affairs.

Domestically, the Qatari polity is likely to remain stable over the forecast period. Indeed, the low unemployment rate and the high living standards for Qatari nationals enhance stability. In addition, job security for most Qataris is high given that the government is by far the largest employer of nationals. Internationally, Qatar is likely to continue to pursue an activist foreign policy. Indeed, its economic muscle, specifically its ability to provide investment capital to the rest of the world through its sovereign wealth fund, will allow Qatar to punch above its weight on the diplomatic stage.

Qatar will remain one of the fastest growing economies in the world, as continued heavy investment in the hydrocarbon sector drives higher oil and gas output levels. We see real GDP growth averaging 7.5% from 2009-2013, with the most rapid expansion occurring in 2010 and 2011, when we forecast growth to come in at 13.3% and 9.1%. Both the government's fiscal balance and the current account balance will remain firmly in the black over the entire forecast period. Qatar's inflation rate turned negative in Q209, as falling rents drove the consumer price index down. Going forward, we expect price pressures to remain weak through 2010.

Over the next five years, the state is likely to play an increasingly important role in Qatar's economy.

We see the government continuing to pursue an expansionary fiscal policy, with a heavy focus on investment. As such, infrastructure will be an important growth area. Having corrected over the past year or so, the real estate sector is, by contrast, set to remain subdued for some time. In addition, credit for businesses is likely to remain tight, at least into 2010. That said, the decision by the government to lower the corporate tax rate for foreign businesses to a flat rate of 10% could boost investment over the longer term.