publication May 1, 2019

Qatar: Economic Update - April 2019

Growth is estimated to have recovered to 2.1% in 2018, as activity has gradually recovered from the effects of a diplomatic rift between Qatar and some GCC neighbors. The economy is expected to expand by 3% over the medium term, helped by continued investments related to hosting the football world cup, and as a large natural gas facility comes onstream. Downside risks stem from volatility in energy prices and continued diplomatic tensions with Gulf neighbors. The diversification of the economy away from hydrocarbons remains a key challenge.

The outlook remains positive with growth expected to rise to 3.4% by 2021 driven by higher service sector growth as the FIFA World Cup draws nearer. In addition, higher infrastructure spending on Qatar National Vision 2030 projects aimed at diversifying the economy should help offset falling investment spending on FIFA projects. Finally, hydro-carbon sector growth is also expected to pick up as the Barzan natural gas facility comes online in 2020, and as the expansion of the North Field gas projects is completed by 2024. Monetary policy is expected to gradually tighten as Qatar’s central bank resumes raising interest rates to restore the spread versus US policy rates, and to attract FX inflows into the banking system.

Public finances are expected to remain in small surplus, supported by recent tax reforms and the introduction of a VAT over the medium term. A recovery in imports, driven by capital goods related to infrastructure spending, should keep the current account surplus in single-digits (in contrast to surpluses of over 30% prior to 2014).

Qatar’s economy has largely overcome the constraints posed by the continuing diplomatic rift with GCC neighbors. Nevertheless, a resolution of this situation would help boost investor confidence. Key external risks include risks of volatility in global energy prices, regional instability risks, and global financial volatility that affects capital flows and costs of funding although these are mitigated by the return to fiscal and current account surpluses.