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Qatar – the Quickest Growing Middle East Economy

Qatar : 20 November 2010

The IMF and authorities in the nation recently confirmed that Qatar is set to become the quickest growing Middle East economy, as well as catching up with the fastest growing economies around the world.

Officials in Qatar know that the overall economic climate in the country remains less than stable and are working towards securing a steadier pattern of growth.  A major part of this work is avoiding a sudden and sharp rise in interest rates that could be detrimental to the economy.

Many national economies have experienced a slower pace of recovery after the slump in 2008 and 2009.  In Qatar, where 8.6 per cent of growth was seen last year, the economy is forecasted to grow between 16 and 21 per cent for 2010.  These expected figures are supported by the IMF and other authorities, with a projected increase in GDP of 18.5 per cent.

The most significant challenge the economy of Qatar is up against is instability in the price of oil and gas.  If hydrocarbon prices dropped, the earnings of the nation would also decrease and the Qatari economy relies heavily on reserves to generate the majority of their revenue.   Qatar supplies Western European importers and those from the Far East, which does provide insulation against extreme movements in oil prices.  However, the condition of the economy within Qatar’s national clients can have an effect on the demand and size of the market.  Production within Qatar is expected to reach a peak in 2012 and the output for liquified natural gas is set to hit 77 million tonnes that same year.

Impacts from fluctuations seen in the coming years should be alleviated at a rising pace as diversification within the economy spreads.  Even though the hydrocarbon sector still takes up the largest individual portion of the nation’s economy, recent changes and work towards better economic diversity is altering the historical landscape of Qatar’s economy.  In 2009 the industry was responsible for 45 per cent of Qatar’s GDP, which is a reduction from the 60 per cent contributed from 2003 to 2008.

Government spending has made an impact on GDP growth as economic stimulation combined with the aim of diversification is targeted by the state.  The Qatari government is ready to invest over $123.5 billion over the coming decade, combined with investments coming in from overseas that drive the progress already seen within the nation.

In contrast to the trend around the world where central banks must cut back interest rates to increase the amount of borrowing, the situation in Qatar is different.  The Qatari reserve bank cut back the base rate in August in efforts to reduce the amount of capital flowing into the country and avoid an overheated economy.  Back in the middle of October Qatar’s central bank noted that it must keep pace with global interest rates so that any difference did not encourage investors to focus their cash flow into the nation.
The bank has therefore instituted a monetary policy with a more flexible approach that will strengthen and stabilize the economy.  This included a 50 basis point cut in the overnight rate, moving the key interest rate to 1.5 per cent.  This is the first decrease seen since May of 2008.

There is worry over the fact that inflation may rise backed by rapid growth and increasing consumer demands.  Recent stats show that the baseline figure for inflation is not rising now, but may change directions and begin to increase.  The Qatar Statistics Authority released data at the end of October showing a fall in the consumer price index of 0.9 per cent over one year in September, which is the most sluggish deflation rate seen this year.

Chief economist John Sfakianakis of the Banque Saudi Fransi stated that although inflation is in the negative this year thanks to trends seen in the first six months of 2010, price troughs are now being flattened.

Deflation is approaching the bottom, said Sfakianakis in a recent interview, as evidenced by two months of stalled deflation.

Even if prices increase next year, the measured approach Qatar employed through the worst financial crisis in six decades has shown the world the steady management of fiscal issues that the nation has in place.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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