DOHA: In the run up to FIFA 2022, Qatari economy is expected face numerous challenges that are likely to be translated into inflationary pressures, a report says.
As the country will need to source significant amounts of goods, primarily building materials and construction equipment, the logistical challenges is likely to be converted into an increased pressure on the local economy. Standard Chartered’s Quarterly Economic reported released yesterday noted inflation is beginning to climb in Qatar.
As projects related to Qatar’s decade-long project pipeline begin to materialise, policy makers will need to address inflation before it becomes an issue, the report said.
“We expect the prices of building materials and certain raw materials are beginning to rise; domestic transport and logistics costs are also likely to feel the pressure,” the research note said.
Qatar’s inflation trended higher in 2012. January inflation rose 3.4 percent y/y, with the majority of the CPI components moving higher.
The housing component has the largest weighting in the inflation basket; while housing has largely weighted down the inflation basket over the last two years, this trend is changing.
In January, housing inflation rose 4.4 percent y/y and 1.1 percent m/m. With more non-oil projects coming on stream, the housing market is likely to stabilise as demand for units builds up on the back of job creation.
Second, imported inflation-primarily via food is also rising, in line with a global recovery in commodity prices.
Standard Chartered maintain its view of moderate 2013 inflation of 3.8 percent for Qatar; however, from 2014 onwards it expects to see inflation trend higher as rising imports related to construction activity drive up other components, such as transport. To date these have been subdued.
The bank’s quarterly research note is constructive on the Qatari credit space. The sovereign’s financial metrics remain robust, although external public-sector indebtedness has increased in recent years.
The sovereign curve remains the most liquid means to gain exposure to Qatar across various maturities
Banks’ fundamentals are robust and banks still offer a slight spread pick-up over quasi sovereigns. Qatar remains the fastest growing economy in the region.
From a fundamental point of view, Qatari banks have the strongest balance sheets in terms of asset quality and capital adequacy.
But from a valuation point of view, Qatari banks are underperformed.
The report noted that there might be an increased debt issuance by Qatari banks to fund the infrastructure-building requirements related to the FIFA 2022 World Cup.
Some Qatari banks are growing rapidly, potentially storing up problems further out and there is higher M&A risk, as Qatari banks appear to be interested in overseas acquisitions, the report said.
The Peninsula
