Qatar’s non-oil sector slows despite World Cup 2022

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• Qatar October PMI marks an end to 27 consecutive months of growth
• PMI fell to 48.4 in October from 50.7 in September
• Output expanded as firms prepare for tourist influx this month
• Firms remain upbeat about output expectations over the coming year

Qatar’s headline Purchasing Managers’ Index (PMI) in October fell below the neutral 50 mark, bringing an end to 27 consecutive months of growth, as the country prepares to host the Fifa World Cup later this month. 

The latest PMI survey data from Qatar Financial Centre (QFC) shows that the index fell to 48.4 in October from 50.7 in September, reflecting a slowdown in the non-oil private sector and marking a 28-month low.  

The index classes 50.0 as neutral and therefore any reading lower than this indicates an economy is contracting.

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“Central to the deterioration was a cooling of new orders which fell for the second month in a row,” the QFC noted in a release published this week. “The slowdown was more notable than that seen in the previous survey period.” 

The rate of contraction was among the sharpest in the survey’s history, albeit softer than the contractions seen during the height of the coronavirus pandemic. 

Subsequently, businesses were keen to make efficiency gains where they could and reduced their buying activity during the month.

Meanwhile, October marked the third successive month of staff redundancies, with firms trimming their headcounts to a record degree in a bid to save on costs. The rate of decrease was the quickest in the survey’s more than five-and-a-half-year history.

However, there were also some bright spots in Qatar’s PMI. Output expanded at a marked and above trend pace as firms prepare for an influx of sales in anticipation of the World Cup’s opening on November 20. 

While overall input prices rose for the third month running, overall prices data signalled improving profitability as firms raised their selling prices at the third-quickest rate in the survey’s history. 

Survey respondents said they had hiked charges to capitalise on greater tourist activity. 

“The Fifa World Cup begins at the end of November and will bring with it a large influx of tourist activity to Qatar,” said Yousuf Mohamed Al-Jaida, CEO of QFC Authority. 

“Sustained increases in output suggest businesses are geared up for a busy four weeks of trading. There are also hopes that the sporting event will have a favourable impact on the country over the next 12 months with sentiment improving to a two-year high.”

The survey noted that firms were widely upbeat about their output expectations over the year ahead.

However, other industry experts are more circumspect in their forward projections.

“The World Cup will provide a short-term boost to the Qatari economy – businesses will benefit from the influx of tourists that will boost activity in November and December,” James Swanston, Mena economist at London-based Capital Economics, said.

“We estimate that the boost from tourism spending alone could be worth at least 6 percent of non-hydrocarbon GDP.

“However, once the tournament rolls out of Qatar there could be a slump in activity as overcapacity in key sectors, such as hospitality, is exacerbated given the large stream of supply that has come online in the past few years. 

“This, coupled with the worsening economic backdrop as the global economy enters into a recession, will weigh on Qatar’s economy and on the new orders component as external demand will be weaker over the coming quarters.”  

Swanston forecasts that economic growth will slow in the quarter following the World Cup, simply as a result of the one-off boost fading, and that growth could remain weak heading into the second quarter of 2023. 

“But, beyond that, GDP growth in Qatar will be stronger relative to other Gulf economies in 2023 as the windfall from hydrocarbon revenues will afford the government scope to loosen fiscal policy next year,” he said.

“The medium- to long-term economic growth prospects for Qatar will hinge on the construction and expansion of the hydrocarbon sector with the North Field facility coming online from 2025.” 

Ratings agency S&P Global Ratings is also subdued in its assessment of the medium-term positive impact of the World Cup on Qatar’s economy.  

“We expect the direct impact of the World Cup to be positive but mostly short-lived, not resulting in any specific change to our medium-term view of Qatar’s economic growth outlook,” said S&P Global Ratings in a research note it published on November 8.

“Entities’ fourth-quarter earnings should benefit from the increased activity, but we don’t foresee any structural changes to the long-term credit profiles of the corporates we rate.

“The hospitality and real estate sectors may experience something of a downturn in subsequent quarters.”

Dubai-based Chrissi Zamora, CEO for Europe and Middle East at Healy Consultants said the World Cup is a “golden opportunity” for Qatar to bolster its economy, but the real impact won’t be known for months to come.

“We also have to consider the significant cost for hosting the World Cup, revenue from this major event does come with a price. For example, Brazil was found to be in a worse economic state after spending $11.6 billion hosting the 2014 World Cup.

“As Qatar is expected to stage the most expensive World Cup ever, a more realistic impact on the economy can only be assessed at a later stage when total cost is accounted for.”

Yet S&P Global Ratings predicts that the World Cup will provide an additional near-term boost to the neighbouring GCC countries which it expects will also host large numbers of fans, benefiting their aviation and tourism sectors. 

“The GCC’s official accommodation portal prioritises ticket holders. Visitors arriving in Qatar without match tickets could struggle to find a room and instead opt to stay in a neighbouring country,” it said. 

The ratings agency expects Dubai to be the main beneficiary outside of Qatar, given its geographical proximity and its already well-established tourism offering, major attractions, airline connections with the region and the world, and multiple-entry tourist visas for World Cup ticket holders.

“Dubai’s hotel capacity is more than three times higher than that of Qatar and we expect football fans to take full advantage, supported by daily shuttle flights between Dubai and Doha, less than an hour away,” said the agency. 

“The absence of any pandemic-related restrictions, including no requirement for PCR tests (from most destinations), further simplifies travelling to and from Dubai.”