(MENAFN - The Peninsula) By Satish Kanady / The Peninsula

DOHA: Qatar's gross domestic product (GDP) is expected to pick up 3.5 percent in 2018, from 1.2 percent (preliminary Qatar figure at 1.9 percent) in 2017, provided that Barazan project is coming on stream.

Barzan is estimated to add 20 percent to total gas output of the country, NBK noted in its first quarter (Q1, 2018) economic outlook for Qatar.

NBK analysts reconfirmed that the initial shock to Qatari economy from the dispute which started in June has passed, with imports returning close to pre-crisis levels, new trade routes established and capital flows more stable. But the economy still remains under pressure.

More positively, the government's main source of revenues oil and gas receipts has been largely unaffected by the dispute, including the gas delivered via the Dolphin pipeline to the UAE, and it has recently bolstered its finances by the sale of stakes in selected overseas firms.

Activity is also cushioned by the long pipeline of infrastructure projects to which the authorities are committed both for the World Cup in 2022 and Vision 2030, including the metro, Lusail Light Rail system and World Cup stadia.

Meanwhile, there are plans to restart development of North Field gas deposits following the lifting of the 12-year moratorium.

Qatar's fiscal deficit has been at manageable levels and much lower than in some other GCC countries. The deficit is estimated to have narrowed to 5 percent of GDP in 2017 from 9 percent a year earlier, with higher revenues due to a year-on-year rise in oil and gas prices more than offsetting a modest increase in government spending.

Hydrocarbon exports were unaffected by the diplomatic row, and accounted for around 85 percent of budget revenues.

'The government's budget for 2018 signals a 2 percent rise in spending, including a focus on food security projects in light of the trade embargo and a rising wage bill that reflects the launch of new schools and hospitals. But we think spending will overshoot, as it did in the previous two years. As has been typical, capital spending will account for nearly half of all outlays, with some QR11bn allocated to sports projects primarily stadia for the 2022 World Cup, NBK analysts noted.

After an initial shock triggered by the diplomatic crisis, flows within the banking system have stabilized somewhat. Deposits of non-residents including from the GCC fell $13bn (25 percent) between May and October, while private sector deposits also dipped.

But this was more than offset by an inflow of $27bn in public sector deposits, as the government looked to cushion the impact on the banking sector. The net impact of these flows has been to push overall deposit growth up to a very strong 17 percent year-on-year in October.

Encouragingly, private sector deposits had returned to growth in September, while the pace of non-resident outflows has eased. But further government funding is likely should the need arise. Despite the weaker operating environment, credit growth has remained robust, reaching a more than 1-year high of 16 percent year-on-year in October.

But much of this strength relates to lending to the government, which surged 61 percent year-on-year in October and accounted for 22 percent of all lending compared to 16 percent a year earlier.

Lending to the private sector has been softer, though stable, at around 7 percent since the crisis began. Increased exposure to the government will likely reduce any rise in problem loans.

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