Qatar’s non-oil growth will remain strong; budget surplus will widen to 10%+ of GDP this year: Emirates NBD

Qatar’s non-oil growth will remain strong despite weakness in the PMI for purchasing managers in the third quarter, Emirates NBD said and noted that Qatar’s fiscal surplus would widen to more than 10% of GDP this year, increasing slightly to 12% in 2023 on the assumption that oil and gas prices will remain high.
Qatar’s GDP grew 4.3% year-on-year (YOY) in the first half of 2022, supported by a sharp rebound in building and construction as the country prepares to host the FIFA World Cup in November and December of this year.
Building and construction is the largest non-oil sector, accounting for 13% of real GDP.
The wholesale and retail sector recorded double-digit growth in the second quarter, while manufacturing output rose 6.2% year-on-year. In contrast, financial and insurance services contracted -5.1% YoY in Q2 and -3.7% YoY in H1.
Smaller sectors such as transportation and warehousing, real estate activities and business services posted strong annual growth, contributing to the 9.7% year-on-year growth in non-oil GDP. Oil & Gas GDP was much more subdued at 1.2% year-on-year in the second quarter, but Emirates NBD expects this to pick up momentum in the second half.
Khatija Haque, head of research and chief economist at Emirates NBD, noted that Qatar’s PMI data for the third quarter (Q3), however, indicates a marked slowdown in non-oil private sector activity. The overall PMI fell to 50.7 in September, the lowest since the pandemic.
The survey shows that business activity has continued to increase strongly, likely as ongoing projects are completed, but growth in new orders has slowed significantly in recent months and declined outright in September.
As a result, private sector employment declined in August and September, and buying activity also slowed as businesses depleted existing inventory. Input costs rose only slightly in the third quarter, but companies were able to raise their selling prices.
The World Cup will likely maintain strong business activity in the fourth quarter, but the pipeline for new work could continue to soften as borrowing costs rise and fewer new projects are launched.
“Overall, we expect real GDP growth of 5.1% in 2022, slowing to 2.7% in 2023,” Khatija noted.
Inflation in Qatar has slowed this year but remains high compared to other GCC countries at 4.8% year-on-year in August, Emirates NBD said.
Housing and food inflation has accelerated in recent months, but has been offset by falling health care and transport costs. Leisure and culture prices, however, have risen sharply as the sector rebounds from pandemic-era deflation.
“However, we expect annual inflation to slow to below 4% by the end of the year, bringing the average CPI to 4.5% this year, from 2.3% in 2021” , did he declare.
Money supply growth accelerated to 12.4% year-on-year in August, the fastest growth since 2018, largely on the back of increased foreign currency deposits. Private sector credit growth slowed to 6.6% y/y in August from a peak of 9.7% y/y in February this year.
Government and public sector credit growth declined on an annual basis after double-digit growth in 2021, falling to -13.6% year-on-year in August.
Qatar’s budget has benefited from soaring oil and natural gas prices this year, with oil and gas revenues up 67% year-on-year in the first half of 2022. Other revenues have also risen sharply this year, with revenue up 58% year-on-year in the first half.
Spending growth was more subdued at 13% year-on-year, concentrated on capital spending projects. Current expenditure and wages and salaries increased by 11-12% year-on-year in the first half of 2022.
“We expect the budget surplus to widen to over 10% of GDP this year, increasing slightly to 12% of GDP in 2023 assuming oil and gas prices remain high.”

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