DOHA: The burgeoning consumer demand, underpinned by a projected seven percent year-on-year population growth, Qatar’s headline inflation is expected to go up over the next two years. The population growth would push inflation to four percent in 2014 and 4.5 percent in 2015 on year-on-year. Tight conditions in the residential market will exert upward pressure on rents in the medium-term.
The NBK’s Mena Economic Outlook released yesterday noted rising rental prices and costs in the entertainment, recreation and culture category were the dominant drivers of inflation in Qatar in 2013. However, food price inflation was relatively restrained compared to previous years.
Qatar’s budget and current account surpluses are forecast to narrow over the next two years, to three percent and 23 percent of GDP, respectively. On the fiscal side, expenditure growth will outpace revenue growth due to the impact of lower projected oil prices on hydrocarbon revenues. Exports of manufactured products, receipts from corporate taxes and income from investments are, however, expected to increase substantially in order to catch up with the development plan’s ambitious spending targets.
Qatar faces challenges both unique and common to regional oil exporters as a whole. In the former, the authorities will need to be aware of inflationary impulses associated with double-digit growth (in non-hydrocarbon sector), mounting public debt, largely due to the issuance of bonds, and capacity constraints that have delayed the rollout of the development plan.
On Qatar’s “money and finance’, the report said the broad money supply (M2) continued to expand in 2013, albeit at a slower rate than in 2012, increasing by 15 percent year-on-year in October. Foreign currency deposits continue to play an important part in the broader money picture. Among the drivers, net foreign assets of the banking system increased significantly in 2013, largely on account of overseas investments and credit by commercial banks as well as an increase in the Qatar Central Bank’s (QCB) holding with foreign banks.
Qatar’s credit growth was a robust 18 percent year-o-year as of October 2013, with lending to the public sector outpacing the private sector. Within the private sector, while lending to the real estate and construction sectors slowed in 2013, credit to the consumer sector picked up. Overall credit growth should accelerate further as more development projects are tendered.
The report noted Qatar’s key lending and deposit rates are unlikely to change from their current levels of 4.5 percent and 0.75 percent, respectively, given the need for broad alignment with the US Federal Funds rate in the context of the fixed exchange rate regime.
The Qatar Exchange (QE) Index performed strongly in 2013, increasing by 24 percent year-to-date as of November. Investor sentiment was also given a boost by the inclusion of Qatar in the MSCI and S&P Dow Jones Emerging Markets Indices starting in May and September 2014, respectively. Markets anticipate greater portfolio inflows. This has been one factor in lifting Qatari business optimism to its highest in almost three years.