Qatar will enjoy the highest real GDP growth rate in the Gulf Co-operation Council (GCC) this year, in addition to the highest GDP per capita. A key economic as well as political risk is high inflation, which continued to rise in H108, although we expect it to gradually come down over the coming years. The government will continue to pursue a proactive foreign policy, encourage investment from abroad, and welcome a large foreign migrant workforce. The oil and gas sector will be the driving force of the economy, but a whole host of investment projects are in the pipeline, which will promote diversification.

The Qatari polity will likely remain very stable over the forecast period, with no credible domestic political challengers to the al-Thani family’s rule. With foreign, predominantly male, nationals making up 90% of the workforce, the large gender imbalance is a potential risk to stability, as are recent instances of labour exploitation and abuse. Having said this, we reiterate our view of ongoing domestic stability. As far as foreign policy goes, Emir Sheikh Hamad bin Khalifa al-Thani is set to continue to play the role of regional mediator. While Doha maintains reasonably cordial relations with Tehran, the outside possibility of a military conflict between the US and Iran would force Qatar to choose sides, with Washington the likely choice.

As far as the economy goes, Qatar looks to set to enjoy five years of healthy growth and prosperity, on the back of continued expansion of the oil and gas sector as well as the development of non-oil sectors. We forecast annual real GDP growth to average 9.2% between 2008-2012. Already the world’s largest producer of liquefied natural gas (LNG), the government has ambitious plans to treble output between 2007-2010, although our forecast is for more measured LNG production growth. Inflation - which accelerated to 16.6% y-o-y in Q208 - will remain a key economic challenge for the government. We expect inflation to come down to 10.0% by the end of 2008 and ease steadily over the forecast period.

Qatar’s business environment remains an attractive investment destination for foreign investors as the country has few security risks and offers a wealth of opportunities in both the oil and non-oil sectors. With a view to growing the non-oil economy, the government is committed to a multitude of investment and infrastructure projects worth an estimated US$100bn by 2012. Transport infrastructure is a major focus, with a multi-billion dollar integrated rail network in the planning stage. However, on the down side, the New Doha International Airport has been beset by delays and is not due to open until 2011, two years behind schedule. Doha is reforming its financial services regulatory regime, which will encourage foreign investment, and with demand continuing to grow, the property market is set to remain strong.