Qatar - The boom continues (page 1 of 2)

Strong economic performance continues
Qatar's economic performance remains stellar, supported by strong hydrocarbon prices and prudent government policies. Importantly, these factors are promoting the long-term resilience of the economy. After strong growth over the last few years, the economic expansion remains buoyant. Recently released official data indicates that nominal GDP growth expanded by 33.8% in 2005. The phenomenal nominal growth rate reflects the continued increases in hydrocarbon revenues, especially with regards to increasing prices. Importantly, the non-hydrocarbon sector's growth also remained strong at 18.8%, although this was a marked slowdown from the previous year due to the high base effect. The strong growth rate in 2005 resulted in Qatar's per capita income increasing by 14% to USD 43,000, one of the highest internationally.

However, slower real GDP growth
With regards to real GDP, the growth rate slowed, albeit still remaining very respectable at 6.1% in 2005. This was a result of a slowdown in the rate of increase in hydrocarbon output and the high GDP deflator partly due to the increasing oil prices. In 2005, Qatar's crude oil production increased by 2.6%, compared to a 46.9% increase in the price of Qatari crude. Indeed, the oil deflator jumped from 131.7 in 2004 to 191.7 in 2005 due to the sustained rise in the price of oil. Furthermore, the positive contribution made by net exports was dampened by the surge in imports given the increased demand in the economy. This resulted in investments making the largest positive contribution to real GDP growth.

Another exceptional year in 2006
The outlook remains bright for 2006. Nominal GDP growth will remain above 30%, while real GDP growth is forecast to accelerate to 8.1% in 2006. Nominal GDP growth expanded by 31.0% y/y in Q2, with the average price of Qatar's crude increased by 29.1% to USD 63.0p/b in H1 2006. Although, the oil price increase will again be removed from the real GDP growth forecast, increased production of gas, and to a lesser degree oil, will result in a strong real growth rate. Liquefied natural gas (LNG) exports are forecast to reach 25.0m tonnes in 2006, compared with 22.9m in the previous year.

Moreover, non-oil sector growth will accelerate in 2006, driven by higher government expenditure and investment, which will drive demand in the economy. Government spending is slated to increase by substantial 44.4% in FY 2006/07 (April 2006-March 2007) to QAR 54.6bn, up from an already high actual spending increase of 31.5% in the previous year. This is the largest budget presented in the history of Qatar. Meanwhile, public project and infrastructure spending will increase by 70.5% to QAR 20bn. Infrastructure spending is particularly forecast to accelerate ahead of the 15th Asian Games, which will be held in Doha in December 2006. Even with higher
spending levels, the budget will still realise a surplus of over 10% of GDP.

Diversification paying dividends
After huge investments, many projects are entering the execution phase. Earlier in 2006, Qatar became the global largest exporter of LNG, surpassing Indonesia. Going forward, there will particularly be large increased in LNG production in 2007, with the completion of the 5th train of RasGas II, followed by the commissioning of the 1st train of Qatargas II at the end of the year. Furthermore, the Oryx GTL (gas to liquids) plant, which was inaugurated in mid-2006, will be fully commissioned in early 2007. This will be an important milestone for the emerging GTL industry.