Economic Analysis - BMI Vs Consensus: Bullish On Israel, Cautious On Qatar - FEB 2018

This month in BMI Vs Consensus, we look at our above-consensus forecast for demand-driven growth in the Israeli economy over 2018, as well as our below-consensus outlook on Qatar, where political tensions and limited hydrocarbon gains look set to weigh on activity in the near term.

Below consensus on Qatar growth: We are below Bloomberg consensus on Qatar's real GDP growth, which we expect will be weighed down by the ongoing GCC diplomatic crisis and persistently weak hydrocarbon sector performance over 2018. We forecast growth of 2.7% in 2018, up from a projected 1.8% in 2017 - largely driven by robust expansion in the construction sector, as 2022 FIFA World Cup-related projects advance - but below consensus of 3.2%. We believe the diplomatic crisis will continue to negatively affect consumer and investor sentiment over the next few months, while also directly disrupting activity in sectors such as tourism and transport. Moreover, according to our Oil & Gas team, Qatari gas production will probably see only a modest uptick, as gains from the planned resumption of drilling at the North Field are unlikely to materialise before 2020 - while the extension of OPEC-stipulated production cuts to end-2018 will restrain oil output.

Above consensus on Israel growth: We are more bullish than consensus towards economic growth in Israel over the coming quarters, largely due to the country's favourable domestic demand picture. We forecast real GDP growth to accelerate from 3.5% in 2017 to 3.7% in 2018, against consensus of 3.3%. Government spending is likely to increase significantly in the run-up to the 2019 election - particularly as Prime Minister Binyamin Netanyahu (subject to various corruption allegations in recent months) and his administration works to regain popular support. In addition, inflation appears set to remain relatively subdued, allowing the Bank of Israel to keep interest rates low. These dynamics are in turn positive for investment, as well as private consumption, as unemployment falls and wages rise.

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