Qatar’s financial resources will remain strong, insurance major and researcher Euler Hermes said and noted that the combined foreign exchange (FX) reserves of the Qatar Central Bank and the Qatar Investment Authority represent well over 150% of the country’s annual GDP and cover more than 50 months of its imports.
In an economic update, Euler Hermes said Qatar’s current account rebounded to a surplus as early as 2017 (+3.8% of GDP) from a deficit in 2016 (-5.5% of GDP) after 17 years of continued large surpluses.
For 2018-2020, Euler Hermes has forecast annual surpluses between 5% and 10% of GDP.
The researcher has forecast full-year GDP growth of 2.7% in 2019. The tentative forecast for 2020 is 2.5%.
In 2018, Qatar’s GDP growth recovered to an average 2% year-on-year (y-o-y) in the first three quarters and Euler Hermes expects a similar outcome for the year as a whole. Mining and quarrying continued to contract in Q1-Q3 2018, by -2% y-o-y, although the decline narrowed to just -0.1% y-o-y in third quarter last year, thanks to “increased” oil output.
Meanwhile, the non-mining and quarrying activities rose by +5.7% y-o-y between Q1 and Q3 of 2018, thanks to healthy growth in the manufacturing (+10%) and construction (+14%) sectors.
On the blockade on Qatar, Euler Hermes said it “had an immediate but short-lived impact” on the Qatari economy.
“Thanks to a huge stock of assets in its sovereign wealth fund, the Qatar Investment Authority, Qatar has been able to avoid an economic crisis. A swift diversification of foreign trade relationships and trade routes was also helpful. Shipments of natural gas and oil, accounting for almost 85% of Qatar’s exports, have broadly continued despite some neighbouring countrys’ ban on Qatari-linked vessels from its waters,” Euler Hermes said.
After 16 years of continued large surpluses, persistent low oil and gas prices from mid-2014 to 2017 pushed the annual fiscal account into deficit in 2016-2017, it noted.
As the oil price recovered in 2018 to an average $72 for a barrel (for benchmark Brent), well above Qatar’s fiscal breakeven point estimated at $60, the fiscal account moved back into a small surplus.
“We expect similar surpluses in 2019-2020,” Euler Hermes said.
Meanwhile, the country’s public debt has risen from 25% of GDP in 2014 to more than 50% in 2018 and is forecast to remain above that threshold in 2019-2020.
However, Qatar will remain a large net external creditor thanks to the huge foreign-asset position in the QIA, it said.
Qatar’s inflation has been forecast to rise from an average 0.2% in 2018 to a still moderate 1.5% or so in 2019. It should accelerate further to about 3% on average in 2020 provided a 5% VAT is imposed that year.
Euler Hermes expects the riyal peg to the dollar to hold as the QCB has large FX reserves to support the currency.
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