JEDDAH: Despite global financial turmoil, looming world recession and falling oil and gas prices, Qatar’s economy looks poised to grow some 10 percent in real terms in 2009. Qatar’s strong economic performance is being fueled mainly by growth in the country’s LNG exports, and an expansionist fiscal policy aimed at supporting large scale investment in improving the country’s infrastructure, the Riyadh-based Samba Financial Group said in its monthly report yesterday.
Qatar’s nominal GDP growth averaged close to 30 percent a year during 2003-07, and is expected to grow by a further 27 percent this year. Over the same period, average real GDP growth has been above 10 percent a year, and is expected to jump to nearly 20 percent in 2008 as new LNG (liquefied natural gas) production comes on stream and the economy benefits from record oil prices and booming credit growth. “Such strong rates of growth have transformed Qatar into one of the most prosperous countries in the world with per capita income expected to exceed $75,000 in 2008,” Howard Handy, chief economist at Samba, said. During the second half of this year, as with other members of the Gulf Cooperation Council (GCC) countries, the Qatari economy suffered from reduced access to foreign funds, tightening domestic liquidity conditions, a slumping stock market, and falling real estate prices. However, Qatar’s LNG exports are projected to continue growing strongly, helping keep the fiscal and current account balances in large surpluses, despite lower oil prices. This will ensure that the government has the resources to comfortably maintain high levels of spending, as well as to provide liquidity to the banking system if necessary.
The key to Qatar’s growing wealth and favorable economic prospects is, according to the Samba report, its expanding oil and gas sector. At end-2007 Qatar’s natural gas reserves amounted to 25.6 million cubic meters, the third largest in the world after Russia and Iran. Qatar has been exporting gas via pipeline to the UAE since 1997, and has become the world’s largest exporter of Liquefied Natural Gas, the Samba report said. Further expansion is scheduled as three new LNG facilities (QatarGas 1 and 2, RasGas 2) come on stream during the next 12 months. This will double production capacity of 2007 to 60 million tons a year by end-2009, all of which is contracted for export.
Qatar also produces and exports substantial quantities of crude oil and condensates. The state oil company, Qatar Petroleum, has plans to raise current production capacity from around 860,000 barrels per day to 1 million bpd by 2010. However, increases in production will be constrained by Qatar’s membership in OPEC, which cut production quotas in October.
Qatar’s new quota of 785,000 bpd is substantially below a projected average production of around 850,000 bpd in 2008. Given the quota cuts, average production for the whole of 2009 will certainly be down between 4-5 percent over 2008, with adverse implications for export earnings. However, it probably will remain above 800,000 bpd.
Real estate development has surged in Qatar, encouraged by a progressive easing of foreign ownership regulations in 2004 and in 2006. This has prompted increasing demand for residential real estate from the rapidly expanding expatriate population (comprising 83 percent of the total) and growing per capita incomes. With demand exceeding supply, rents have risen threefold over the past two years.
In addition to residential real estate, large-scale investments are under way to increase office space, retail space, and hotel room capacity in the country. Abundant liquidity in the region, negative real interest rates, perceptions of high returns, and the government’s emphasis on diversification and infrastructure improvement have encouraged ambitious public and private development projects, particularly in the capital Doha. Some of the more important projects Qatar has undertaken are the $5.5 billion new Doha International Airport, $5 billion Lusail Real Estate project, a $5 billion tourism project in Al-Khor, the $2.5 billion Energy City, $2.5 billion man-made Pearl Island, $2 billion causeway linking Qatar and Bahrain, a $1.2 billion leisure city in Doha, and 180 high-rise buildings.
Because of the credit crunch, the report said, Qatar’s many projects will be delayed or canceled due to higher financing costs and reduced availability of funding.
“This may be a positive as the economy was starting to seriously overheat, and could prompt a worthwhile prioritization of projects. An expected slowdown in project implementation will also help ease capacity constraints and contribute to containing soaring inflation which, at a projected annual rate of 16 percent for 2008, has become a key economic challenge for the authorities,” Handy said.