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Qatar: Non-oil growth to remain strong despite soft PMIs in Q3

Khatija Haque - Head of Research & Chief Economist
Published Date: 06 October 2022


Qatar’s GDP grew 4.3% y/y in H1 2022, underpinned by a sharp rebound in building and construction as the country prepares for to host the FIFA World Cup in November and December this year. Building and construction is the largest non-oil sector accounting for 13% of real GDP. The wholesale & retail trade sector posted double digit growth in Q2, while manufacturing output grew 6.2% y/y.  However, financial and insurance services contracted -5.1% y/y in Q2 and -3.7% y/y in H1.  Smaller sectors such as transport and storage, real estate activities and business services posted strong annual growth, contributing to the 9.7% y/y growth in non-oil GDP.  Oil and gas GDP was much more modest at 1.2% y/y in Q2 but we expect this to accelerate in the second half of the year.

The PMI data for Q3 point to a sharp slowing in non-oil private sector activity however.  The headline PMI fell to 50.7 in September, the lowest reading since the pandemic.  The survey shows that business activity continued to rise sharply, likely as ongoing projects are completed, but new order growth has slowed significantly in recent months and declined outright in September.  Consequently, private sector employment has declined in both August and September, and purchasing activity has also slowed as firms use up existing inventories. Input costs have increased only fractionally in Q3 but firms have been able to raise selling prices. 

Qatar's PMI has declined on weak new orders

Source: S&P Global, Emirates NBD Research

The World Cup will likely keep business activity strong in Q4 but the pipeline of new work may 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.

Inflation in Qatar has slowed this year but remains high relative to other GCC countries at 4.8% y/y in August.  Housing and food inflation has accelerated in recent months but has been offset by lower healthcare and transport costs.  Recreation and culture prices have risen sharply however as the sector rebounds from pandemic-era deflation. However, we do expect annual inflation to slow to under 4% by year end, bringing average CPI to 4.5% this year, up from 2.3% in 2021.

Money supply growth has accelerated to 12.4% y/y in August, the fastest growth since 2018, largely on the back of increased FX deposits. Private sector credit growth has 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 has declined on an annual basis after double digit growth in 2021, falling to -13.6% y/y in August.  

Qatar’s budget has benefitted from the surge in oil and natural gas prices this year, with oil and gas revenues up 67% y/y in H1 2022. Other revenues have also increased sharply this year, with top line revenue up 58% y/y in H1. Expenditure growth has been more restrained at 13% y/y, focused on capital spending projects. Current spending and wages and salaries have increased 11-12% y/y in H1 2022. We expect the budget surplus to widen to over 10% of GDP this year, rising slightly to 12% of GDP in 2023 on the assumption that oil and gas prices will remain high.