By Satish Kanady
DOHA: Qatar will remain the fastest growing of all GCC sovereigns in 2013, driven by the government’s huge capital investment programme. The growth is set to boost as the fiscal stimulus would be triggered by a combination of healthy rates of bank lending and buoyant consumer and business confidence, Fitch Ratings forecast yesterday.
In its first quarterly “GCC Sovereign Credit Overview”, however, the ratings agency noted economic growth in the GCC will slow in 2013 due to a moderation in oil production growth, but high oil prices will provide a supportive backdrop for another year of solid non-oil growth. Many governments in the region will continue to use high oil revenues to stimulate their economies
In the non-rating action commentary on Qatar, the Fitch noted gas output hitting capacity has caused headline economic growth to slow to mid-single digits. Qatar’s high government capital spending on major multi-year projects continues to stimulate the non-hydrocarbon sector.
“Qatar is playing increasingly prominent global role through Sovereign Wealth Fund (SWF) investments and foreign policy. The country’s domestic debt market is being developed, but funding of substantial infrastructure spend is driving up external debts …. Inflationary pressures outside the real estate sector is building up...”,
GCC economies will remain heavily influenced by global oil markets. With conditions tight, low global spare capacity and little new output coming on-stream, Fitch expects Brent crude to average around $100 per barrel in 2013 despite the weak outlook for demand. As most GCC exporters aside from Saudi Arabia are operating at close to capacity, there is little scope to raise output after the hikes over 2011 and 2012.
Fitch does not view the higher government spending that helped growth bounce in H1, 12 in Bahrain is sustainable and instead political uncertainty will continue to cloud the outlook. A worsening political climate could hit economic performance in Kuwait. Although there is little fiscal impulse in the UAE, the non-oil economy will pick-up owing to a renewed influx of businesses and residents.
For all GCC sovereigns apart from Bahrain, fiscal and current account surpluses are anticipated, further strengthening sovereign balance sheets and external positions. Fitch expects the benign global inflationary environment to be sufficient to offset most domestically-driven price pressures and keep inflation in the region relatively subdued.
The main economic risks to the outlook for the region are external. The US fiscal cliff poses the largest short-term risk. A slowdown in China and an intensification of the eurozone crisis would also hurt the region. In addition, the GCC remains vulnerable to swings in oil prices. Given the fiscal policy space in most of the GCC, Fitch anticipates that these risks should be manageable in 2013. The principal political risks are the possibility of conflict between Israel and Iran and an escalation of the unrest in Syria.
In Fitch’s view the key challenges facing the region are economic diversification, rising breakeven oil prices, unemployment and accountability. Although some steps are being taken to tackle these issues, it will take some years for any successes of a magnitude necessary to impact positively on the ratings to occur.