Political crisis highlights economic vulnerability
The impact of the Saudi and Emirati embargo against Qatar will depend on the length of the crisis and on the intensity of the sanctions. Economic growth should slow but remain positive and CPI inflation should accelerate. Fiscal accounts are expected to be moderately affected. The main threat would be an extension of sanctions to the financial sector. Qatar is highly dependent on external financing, and the liquidity of a part of the sovereign fund could be questionable. Nevertheless, the government should confirm its support to the banking sector in case of deterioration in the situation of banks.
The consequences of the Gulf crisis on the Qatari economy are contained for the time being. Alternative trade routes are used and exports of Liquefied Natural Gas (LNG) are preserved. However, if sanctions were extended to other sectors, financial for example, the economic situation could rapidly deteriorate. More generally, this political crisis is taking place in a context of slowing economic growth and tightening banking liquidity.
■ Declining economic activity
Economic growth has been losing steam for several years because of the moratorium on gas development and fiscal consolidation measures. Real GDP growth reached 3.9% on average during the period 2012-16 against 16% on average from 2007 to 2010.
In the short term, activity should be significantly affected by the regional embargo against the country. The restrictions on transportation will slow the inflow of goods and reduce domestic consumption and investment. The numerous infrastructure projects linked to the Vision 2030 plan and to the World Cup (WC) 2022 will suffer from delays. Trade of goods and the circulation of workers are likely to be affected. To run its economy and execute its projects, Qatar relies heavily on expatriate workers.
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by Pascal DEVAUX