In the final quarter of 2012, Qatar’s gross domestic product (GDP) neither grew nor shrank, according to the Qatar Central Bank, but stayed flat. Although the economy still expanded over the year as a whole, the figure for the fourth quarter is the clearest confirmation yet that the era of breakneck growth is now firmly at an end.

The double-digit rise in GDP that has become the norm in recent years is giving way to more modest expectations. As the Washington-headquartered IMF’s executive board noted in mid-January, following its most recent Article IV consultation with Qatar, “growth rates are stabilising in 2012, mainly due to a slowdown in hydrocarbon sector growth”.

[Qatar’s] non-hydrocarbons sector [is] the strongest in the region, based on the pace of credit growth

The IMF estimates that the Qatari economy expanded by 6.6 per cent last year and it expects to see growth of 5.2 per cent this year. That is in line with the forecasts of leading regional banks such as Qatar National Bank (QNB) and National Bank of Kuwait (NBK), both of which say they expect the Qatari economy to expand by 5 per cent in 2013.

Infrastructure spending in Qatar

As Doha has no current plans to build any more hydrocarbons production capacity, the emphasis, in terms of growth at least, is shifting to other parts of the economy. The good news for Qatar is that many of these other sectors of activity appear to be thriving.

Doha’s new airport, Hamad International, is due to receive its first passengers on 1 April and a wider infrastructure build-out continues apace. The country needs to invest heavily in a wide range of areas if it is to cope with the anticipated increase in its population in the coming years and, more specifically, the influx of visitors for the football World Cup in 2022.

It is these efforts that will be at the heart of Qatar’s economic growth in the short-to-medium term, until Doha decides to allow further exploration and exploitation of its gas reserves in the North Field. The IMF expects the oil and gas sector to grow by a maximum of 3.5 per cent over the next five years and to contract slightly, by 1.1 per cent, in 2014.

In contrast, it expects the non-hydrocarbons sector to grow by 9-10 per cent between now and 2017, driven by increased activity across the construction, transport and communications, trade and hotels, and service industries.

Diversification is a key aim of all the energy-rich GCC governments, but London-based consultancy Capital Economics judges the non-hydrocarbons sector in Qatar to be the strongest in the region, based on the rapid pace of credit growth.

Domestic credit from the country’s banks grew by 27.8 per cent last year, according to IMF figures, and is expected to increase by a further 16.4 per cent this year.

Importantly for the health of the economy, inflation remains under control. This year, the consumer price index is expect to rise by around 3 per cent and it is likely to increase further to 5 per cent by 2016. Even then, it is still far better than the situation in the previous decade.

From 2006 to 2008, inflation was in double-digits, hitting a high of 15 per cent for 2008. The key reason behind the lower rate of inflation since then has been the overcapacity in the property market, which has kept rental prices low. As the country’s population increases, supply and demand for real estate should become more evenly matched, allowing for a rise in prices.

In 2012, Qatar’s population rose by 7.5 per cent, according to QNB, taking it to a total of 1.8 million, 74 per cent of which is male. The bank says that it expects the population to expand by a further 3.1 per cent this year and 2.8 per cent next year.

There is already some evidence that the real estate market is making gains. In late January, Qatar Central Bank released the first data for its real estate index, which it says will be updated on a quarterly basis from now on. The index showed a gradual, if erratic, rise in prices between June 2011 and September 2012, the most recent month for which data is available.

Positive economic outlook

There are a few clouds on the horizon, not least the political tensions between Iran and the West, which could yet disrupt the country’s liquefied natural gas (LNG) exports through the Strait of Hormuz.

And of course if oil and gas prices decline on global markets that will also affect government revenues. Nonetheless, the country has built up sizeable reserves, which mean it will be able to deal comfortably with a drop in prices for many years and the local banking sector is also well capitalised. Overall, it is hard to argue with the IMF’s conclusion that “the medium-term outlook for the economy remains favourable”.