Qatar’s central bank warned yesterday that Europe’s debt crisis and slowing growth in emerging markets (EMs) could crimp demand for oil and gas and erode state revenues this year.

The central bank, in its 2011 financial stability review, also warned of increased global geopolitical tensions causing potential disruption to the shipping of liquefied natural gas (LNG), of which Qatar is the world’s top exporter.

“With the euro area expected to go into a mild recession in 2012 and growth in emerging and developing economies already showing signs of slowdown, the downside risk is lower oil and gas receipts as a result of a decline in global demand and potential disruption in transportation of LNG due to increased geopolitical tensions,” it said.

As well as Europe, there are signs that economic growth in EMs like China and India is slowing amid global uncertainty. Demand for Qatari LNG is highest in Asia.
The remarks come at a time when the country is pushing hard to diversify its economy and wean its dependency away from oil and gas.

Qatar, one of the world’s richest countries, saw growth of nearly 20% in 2011 as investment in its gas industry peaked. This will slow to 4.5% in 2013, down from 6.2% in 2012, its economic planning board predicted in June, as gas exports plateau.
The state is heavily reliant on hydrocarbon revenues to fund domestic spending and overseas investment.

Citing International Monetary Fund data, the central bank said hydrocarbon export earnings were nearly $ 100bn in 2011.

Of the $ 225bn earmarked for domestic spending over the next five years, Qatar plans to funnel $ 107bn into the non-hydrocarbon sector to spur growth.

Europe’s debt crisis could also hurt project financing, the central bank warned, as Qatar prepares for a large infrastructure build-out in time for the 2022 World Cup.

“Furthermore, pending a successful resolution of the sovereign debt problems in Europe, global liquidity conditions could tighten from increased risk aversion, which could have an impact on investments and project financing in Qatar,” it said.

Earlier in the year the State had warned that a pullback from struggling European banks could hurt local lenders’ ability to borrow on the international credit markets to fund domestic infrastructure projects.

Aiming to support growth in the gas-rich state, Qatar will keep interest rates low through “proactive liquidity management”, it added yesterday. “…sustaining the regime of soft interest rates through proactive liquidity management continues to remain a key priority for supporting growth.”

Qatar, which pegs its currency to the US dollar, lowered interest rates twice last year to stem the inflow of so-called hot money attracted by the country’s relatively high interest rates compared with those in the US.

The move was also expected to incentivise banks to lend more as the country gears up for a huge infrastructure building programme for the 2022 World Cup.