Qatar Country Risk Report Q4 2018
Qatari real GDP growth is likely to accelerate slightly in the near term. Hydrocarbon sector output is set for modest expansion and government investment into infrastructure and economic diversification initiatives will continue apace.
Rising hydrocarbon prices will substantially boost Qatar's fiscal revenues. This will more than offset a projected increase in fiscal spending, fuelled by government initiatives to develop infrastructure and non-hydrocarbon sectors.
Rising hydrocarbon prices will also drive a slight uptick in Qatari inflation over the months ahead. VAT implementation is likely to push prices up as well, though the impact will probably be felt primarily in 2019.
The QCB will continue to track the US Fed's monetary tightening cycle, although we could see further delays in implementing rate hikes in the near term, in a bid to support non-hydrocarbon growth.
Qatar's current account surplus will widen over the coming quarters, as hydrocarbon export earnings increase. Imports and remittance outflows will tick up on the back of gradually expanding non-hydrocarbon activity, though not at a fast enough pace to significantly alter the current account's positive trajectory.
The US-GCC Camp David Summit, if held, appears increasingly unlikely to produce a resolution to the GCC crisis. The GCC itself will probably remain intact in order to facilitate US engagement and hedge against future threats, though persistent tensions will severely restrict intra-bloc cooperation.
Given the economy's heavy reliance on the hydrocarbon sector, another collapse in hydrocarbon prices would impact negatively on Qatar's fiscal, external and growth dynamics. That said, we highlight that the country's vast sovereign wealth fund provides it with significant financial buffers against such a shock.
While unlikely, we cannot completely rule out an escalation of the GCC diplomatic crisis. This would negatively impact investor perceptions towards Qatar (as well as the broader region), weighing on non-hydrocarbon private sector investment and activity.
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