Dubai: The $126.5 billion (Dh464.25 billion) Qatar economy with a real gross domestic product (GDP) growth of 13 per cent per cent is one of the world's fastest growing economies.
It also has a per capita income of $66,100, the sixth highest in the world.
With its vast hydrocarbon export surplus, the country has embarked on a mission to diversify its economy largely driving it with private sector investments in the non-hydrocarbon industries.
Currently the nation's economy largely depends on its vast oil and natural gas reserves. Qatar's oil and gas sectors are the largest contributors to GDP in real terms.
Last year gas accounted for 25.5 per cent of the 2010 GDP, and oil accounted for 24 per cent. Government services (which rely on oil and gas revenues) made up 11.6 per cent of GDP, and the construction sector accounted for 9.13 per cent while manufacturing made up five per cent of the GDP.
"Overall real GDP growth should remain in double digits in 2011, in our view, at 12.8 per cent year on year. Hydrocarbon sector growth will slip from its 2010 high as the final mega-train comes on line and Opec remains reluctant to raise the crude oil output ceiling for a second consecutive year," said Brad Phillips, an analyst with IHS Global Insight.
Robust
"Nevertheless, we expect real hydrocarbon sector growth will remain robust at 15.1 per cent next year," he said.
Economists expect Qatar to keep up its high growth rate thanks to improving global oil prices, surging infrastructure investments and fiscal expenditure that are giving an unprecedented boost to the non-oil private sector.
"We are positive on the longer-term outlook for infrastructure investment.
"The government plans to spend close to $20 billion on new roads and transport infrastructure over the next five years, and a $36 billion metro system is in the pipeline over the longer term," said Shady Shaher, an economist with Standard Chartered Bank, UAE.
On the infrastructure front Qatar is also building an $11 billion airport and a $5.5 billion deepwater seaport. Analysts say Qatar's economy is set to benefit in the short term from higher infrastructure spending as the country has won the bid to the FIFA World Cup in 2022.
Economists say additional push factors such as higher oil prices, higher external demand, and strong fiscal spending should bolster non-hydrocarbon economic activity in the coming years.
"In our view, going forward, the push towards economic diversification will accelerate in Qatar," said Shaher.
"The nation needs to generate more jobs for its young population, and the capital intensive hydrocarbon sector is not creating the necessary employment."
Jacqueline Madu, an analyst with Credit Suisse said: "We expect local authorities to use incoming oil and gas revenues to diversify the economy and further develop the midstream and downstream components of the hydrocarbon sector".
On the macro economic front, the improving global economic picture is supportive of oil prices and places Qatar's external balances on a healthy upward trend. Even with a baseline average oil price assumption of $85 per barrel in 2011, Credit Suisse analysts estimate Qatar's trade surplus to climb to 29 per cent of GDP and the current account surplus reaching 15.9 per cent of GDP.
Surplus
"We estimate that if global oil prices were to average $95 per barrel in 2011 ($10 per barrel higher than our baseline assumption), Qatar's trade surplus would rise to 31.7 per cent of GDP and the current account surplus would increase to 19 per cent of GDP," said Credit Suisse's Bayazitoglu.
Despite going through a period of high growth, analysts say the country should continue to enjoy a period of price stability in the next few years.
"A period of record high inflation ended in 2009 as falling property prices led to deflation, which averaged close to five per cent.
"We believe the outlook for inflation remains subdued in 2011, as the property market continues to struggle with oversupply, particularly in light of the weak outlook for population growth," said Standard Chartered's Shaher.
The capital-intensive hydrocarbon sector is simply not generating enough jobs to sustain Qatar's housing market.
The private sector remains too small to drive significant inflows of buyers to boost demand. This year's low base effect and higher food prices should push Qatar from deflation to disinflation in 2011.
Deflation
Economists expect an end to deflation seen in 2010 and inflationary pressures will remain subdued in 2011 as slumping rents counter the effects of higher food prices.
Credit Suisse has projected an average annual inflation rate of 3.1 per cent in 2011, up from estimated average annual deflation of 2.4 per cent in 2010 in comparison to the IMF's projection of three per cent inflation in 2011 against one per cent inflation in 2010.
Consumer prices are being gradually pulled out of their deflationary pattern, with food and transportation/communication prices leading the way up.
Falling housing costs, though, will keep inflation in the emirate benign for the short term. Money supply will likely grow at an accelerated rate this year because of base effects, stronger growth and improved lending activity.
Firmer real estate demand and strengthening consumer demand should continue to push inflation up to an average annual rate of 5 per cent in 2012.
Drag on economy
The non-hydrocarbon sector should grow in the double-digits over the medium term, accelerating from around 9.3 per cent in 2010 to 10 per cent in 2011 and 10.7 per cent by 2012.
The property market is expected to be a drag on the economy in the short term though, as a glut of supply and persistently tight credit conditions suppress sale prices and delay development projects.
"We envision that slackening credit conditions and greater parity in the real estate market will eventually allow growth in the non-hydrocarbon sectors to overtake that in the hydrocarbon sector by 2012, which we expect to grow just 5.9 per cent in 2012," said Bayazitoglu.
Market estimates put Qatar's property price declines at close to 15 per cent in 2010, with almost 10,000 new homes completed during the year.
Analysts estimate a further decline of about five per cent in the housing sector in 2011 and about 10 per cent decline in the commercial property sector.
