Economic Commentary
Qatar’s Ministry of Development Planning and Statistics (MDPS) released GDP data for the second quarter of 2016 last week. In real terms, the economy picked up by 2.0% year-over-year in the second quarter, compared to a 1.4% gain in the first quarter. This puts real GDP growth for the first half of the year at 1.7% year-over-year.
The hydrocarbon sector contracted by 1.2% year-over-year in the second quarter, however, this was an improvement over the decline of 2.9% year-over-year experienced in the first quarter and drove overall real GDP higher.Through the first half of the year, the hydrocarbon sector declined by 2.0% year-over-year. Crude oil production, according to the Joint Organisations Data Initiative (JODI), fell by just 0.2% year-over-year through the first two quarters of the year and accounts for about one-third of Qatar’s hydrocarbon production. Therefore, most of the decline in hydrocarbon production came from the remaining two thirds of the hydrocarbon sector, which consists of natural gas, condensates and other liquids, mainly extracted from the gas fields.
Nominal hydrocarbon GDP, which includes the influence of prices, experienced a contraction of 34.0% year-over-year in the second quarter, also an improvement from the first quarter where growth fell by 41.3%. In the first half as a whole, nominal hydrocarbon GDP declined by 37.8%. This sharp decline is largely explained by the weakness in global crude oil prices experienced in early 2016. Consequently, the hydrocarbon sector now accounts for just below 30% of the Qatari economy.
Real GDP Growth (% year-over-year)
Sources: MDPS, Haver Analytics and QNB Economics
In terms of the non-hydrocarbon sector, year-over-year growth was 5.5% in the second quarter, slowing from 6.2% in the first quarter. Growth in the first half of 2016 stood at 5.8%.Weakness in the manufacturing sector was the main driver of the quarterly decline and was attributable to lower production of basic chemicals and plastics.
In nominal terms, non-hydrocarbon GDP grew by 4.4% year-over-year, down slightly from 4.9% in the first quarter. However, nominal growth in the first half of the year is up 4.7% year-over-year.
Despite the moderation in real GDP growth in the first half of 2016, we believe growth is poised to rebound in the second half. Weaker hydrocarbon production appears to have bottomed out and historically government spending has been stronger in the second half of the year, aiding non-hydrocarbon growth. Moreover, population growth has picked up to 8.7% in the third quarter, compared to 6.7% in the first half of the year. This should support demand for the service sector, adding to non-hydrocarbon sector growth.