Visitor arrivals to Qatar plunged 55 per cent between May and June, and were still down 55 per cent year-on-year (y/y) in September, said the National Bank of Kuwait (NBK) in its latest Economic Update.

Visitors from the Gulf typically account for around half of all arrivals to Qatar, and were down a massive 84 per cent y/y in September. Visitors from elsewhere were down a more modest 10 per cent y/y, but had been up earlier in the year.

Monthly data on merchandise trade also show a large impact, according to the Update.

The value of imports plunged 38 per cent between May and June; however, by September import levels had recovered, helped by the sourcing of goods from markets such as Turkey and Pakistan, as well as by increasing use of the newly-opened Hamad Port– the second largest port in the Gulf region behind Jebel Ali.

Food prices rise by less than feared

Fears of a major inflation-busting spike in food prices due to restricted imports have so far not materialized – likely helped by the recovery in imports. Food price inflation did jump from 0 per cent y/y in June to 4.5 per cent in July, but this was less than had been feared and it has since eased back to 3.6 per cent in September.

In fact, inflation overall slipped into negative territory in August at -0.4 per cent y/y driven by renewed weakness in housing costs and weak ‘core’ pressures. Both of these are likely linked to crisis-related pressures.

Property prices show signs of renewed weakness

Residential property prices had been undergoing a correction since early 2016, and though still down in year-on-year terms had more or less levelled off in 1H 2017. Since then, however, prices have taken another leg down, falling 9 per cent between June and September – possibly attributable to a drop in confidence and a weaker economic climate. Other asset markets have suffered too, with the local stock market falling 17 per cent since the crisis began, making it easily the region’s worst performer. Other GCC markets are -7 per cent to +8 per cent, against a backdrop of greater optimism over the outlook for oil prices.

Public sector steps in to boost bank deposits

There have been visible changes in the banking sector, too. Foreigners have withdrawn some $12 billion (23 per cent) of their deposits from Qatari banks since June, though the rate of withdrawal has slowed in recent months. By itself, this could have left a large hole in banks’ balance sheets, and a potential funding crisis.

But these non-resident outflows have been more than offset by $28 billion (+51 per cent) in inflows from the public sector, pushing the latter’s share of total deposits to 37 per cent. The net result of these flows has been to see overall deposit growth surge to 18 per cent y/y in September from 12 per cent in May. Credit growth, meanwhile, remains encouragingly solid at 13 per cent y/y.

Interest rates pushed higher, though affected by higher policy rate

Interest rates have risen across the complex – but not by much and not all of it is related to the crisis. Official policy rates were hiked by 0.25 per cent in mid-June following a move by the US Fed, and this triggered rises in commercial rates. Interbank rates have risen around 50bps since early June, with half of the increase occurring before the rise in the policy rate.

Meanwhile, yields on the government’s 2026 sovereign bond are up slightly, but at 3.6 per cent they remain low and the recent rise reflects comparable movements in other GCC countries. There was little material impact on yields from a one-notch post-crisis credit rating downgrade from both S&P and Fitch.

Finally, conditions on the foreign exchange market have been slightly more volatile. In the days following the start of the dispute, speculation on the currency peg spiked, with the 1-year forward rate rising to QR3.77/$1, or 4 per cent weaker than the 37-year old pegged rate of 3.64. It has since entirely receded. The offshore spot market has also seen volatility due to low levels of liquidity. International reserves at the central bank fell 44 per cent to $20 billion between May and August, but by only 15 per cent to $39 billion based upon a reclassification of assets in October.

Non-oil growth slowing – but still well clear of recession

Finally, the 2Q 2017 GDP data incorporate nearly one full month of crisis-affected data, and show that non-oil growth slipped to just 3.9 per cent y/y – the weakest quarterly figure since records began in 2011 –pushing overall GDP growth down to 0.6 per cent.

If all of the slowdown in Q1 was attributed to the diplomatic dispute, then this would equate (hypothetically) to non-oil growth slowing to just 1.3 per cent y/y over a full quarter. But it is also possible that the hit to growth will be smaller in subsequent months, as the initial disruption to activity wanes.

“Although there are downside risks from an intensification of the crisis, we are for now maintaining our view that non-oil growth will slow to 4 per cent this year and next, from 5.6 per cent in 2016,” the NBK update said. – TradeArabia News Service