29 August 2016
DOHA: Amid lower-than-expected project spending and tighter liquidity, Qatar's economy is cooling down to a steadier growth. The country's growth slowed to 1.1 percent y/y in the first quarter of 2016 (Q1, 16) due to a contraction in oil output and moderating non-hydrocarbon sector expansion. While crude output declined from 0.7 mb/d to 0.66 mb/d in 2015, gas production rose.

Gas prices have mimicked oil's decline; the LNG price in Japan, Qatar's largest market, has more than halved since mid-2014. Inflation rose to 2.7 percent in July mainly on account of higher transport costs, but housing oversupply has capped rent rises, NBK's 'Qatar chart book' noted yesterday.

Falling demand coupled with a surfeit of new properties on the market have seen real estate prices trend lower in 2Q16. Project awards have lagged considerably in 2016 due to financing constraints and project spending rationalisation.

The fiscal surplus fell to 1.2 percent of GDP last year as revenues were hit by lower oil and gas (LNG) prices. The government's debt profile will rise further in 2016 as it taps the bond/credit markets to plug the fiscal shortfall. Almost $12 bn worth of sovereign debt has been issued in 2016, including a $9bn USD-denominated bond in May. Qatar's Current Account surplus fell to 8 percent of GDP in 2015 from 23 percent of GDP in 2014 with the decline in export (goods) revenues.

Banks' assets reached $321.5 bn in June (193 percent of GDP), but growth has slowed to 10 percent y/y due to slower credit growth. Credit growth slowed to 14 percent y/y in June; credit to the private sector is expanding at the slowest rate (10 percent y/y) since 2011.

With both public and private sector deposits down in 2016, total deposit growth (1 percent y/y in June) is the slowest in years. Banks are relying more on non-resident deposits, interbank funds and debt to compensate for the decline in deposits. Net foreign liabilities have surged since 2015 on the back of increased foreign lending and non-resident deposit-taking. Rates are off their June highs after the Qatar Central Bank (QCB) reduced its monthly T-bill sales; the foreign bond sale helped liquidity.

Key rates remain unchanged despite a 25 bps hike in the US Fed funds rate in December 2015. Forward rates remain elevated due to speculative pressure. CD

© The Peninsula 2016