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Currency markets face "many headwinds" in the second half (H2) of the year, Emirates NBD said and noted "there is room for some currencies to manage to push back against the dollar." Currency markets endured some sharp moves overnight as expectations of a recession hitting the global economy in the near-term rise. While economic indicators still point to growth expanding, it is at a much slower pace than the past 18 months and the headwinds to sustained growth look substantial. High inflation — now effectively a global issue — and the lingering effects of the Covid-19 pandemic on incomes, supply chains and governments’ resolve to support their economies will all be negatives for currency markets across the rest of H2, 2022. It is now a challenge to find a central bank that is not stepping up to the challenge of higher inflation via tighter monetary policy. Since the start of the year, central banks of the G20 have hiked policy rates by 1,415bps (stripping out Argentina given the country’s idiosyncratic inflation dynamics) with the Fed leading the large developed markets with 150bps since the start of the year. Japan and China remain relative outliers in either keeping policy unchanged or actually easing conditions (as the PBoC has done). For the US, markets are now pricing in a peak in the Fed funds rate as early as February next year before rate cuts or policy easing bring borrowing costs lower in the face of a recession. Minutes from the June FOMC meeting will be released later this evening with focus on how much the Fed is targeting inflation at the expense of other economic indicators. “We maintain they will take an aggressive stance on inflation to avoid it becoming entrenched in the economy even as markets price in a sharp drop in activity,” noted Edward Bell, senior director (Market Economics) at Emirates NBD, the author of the report. In the UK, the outlook for the economy remains particularly grim, with the Bank of England seeming to act as doomsayer-in-chief. The BoE has hiked five times since the start of the year but with the net result being inflation at more than 9% and likely to peak at over 11%, according to the BoE’s own estimates, and sterling down almost 12% year-to-date as of early July. “We had cautioned a few weeks ago that our Q3 targets for GBPUSD at 1.20 and EURUSD at 1.05 would be upside caps on prices and the disorderly sell-off in currency markets overnight in markets with limited policy responses shores up our view. “We expect that the US dollar will remain a relative outperformer thanks to policy differentials favouring the greenback as well as investors seeking it as a haven asset,” Emirates NBD said. With that in mind, though, there is room for some currencies to manage to push back against the dollar, Emirates NBD said. Relative early movers on inflation have seen their currencies weather the storm somewhat better. This has been the case for commodity-oriented emerging market currencies in particular with the Brazilian real actually up more than 3% against the USD ytd, the South African rand holding its losses to about 4% ytd, and the Indonesian rupiah capping losses at around 5% ytd. Whether they can withstand a withdrawal of capital should a full-borne investor retreat from risk emerge is more questionable but commodity-exposed currencies seem likely to withstand the selling to a better degree. This is partly true in developed markets as well, with CAD the best performer among G7 currencies, losing just 3% ytd against the dollar, Emirates NBD noted.

The progressive reopening of Asian markets is boosting traffic through GCC hubs such as Doha and Dubai, IATA’s latest data reveal. Middle Eastern airlines’ traffic rose 317.2% in May compared to May 2021, IATA said. May capacity rose 115.7% versus the year-ago period, and load factor climbed 37.1 percentage points to 76.8%. IATA’s passenger data for May 2022 showed that the recovery in air travel accelerated heading into the busy Northern Hemisphere summer travel season. Asia-Pacific airlines had a 453.3% rise in May traffic compared to May 2021. This is significantly higher than the 295.3% year-on-year gain registered in April 2022. Capacity rose 118.8% and the load factor was up 43.6 percentage points to 72.1%. Improvements in the region are being driven by reduced restrictions in most of the region’s markets, except China. African airlines had a 134.9% rise in May revenue passenger kilometres (RPKs) versus a year ago. May 2022 capacity was up 78.5% and load factor climbed 16.4 percentage points to 68.4%, the lowest among regions. European carriers’ May traffic rose 412.3% versus May 2021. Capacity rose 221.3%, and load factor climbed 30.1 percentage points to 80.6%. The impact of the war in Ukraine remained limited to areas directly impacted. North American carriers experienced a 203.4% traffic rise in May versus the 2021 period. Capacity rose 101.1%, and load factor climbed 27.1 percentage points to 80.3%. With most restrictions removed for travellers from this region, tourism and a high willingness to travel continue to foster the international recovery as several other routes areas are now outperforming 2019 results. IATA’s Director General Willie Walsh said: “The travel recovery continues to gather momentum. People need to travel. And when governments remove Covid-19 restrictions, they do. Many major international route areas – including within Europe and the Middle East-North America routes – are already exceeding pre-Covid-19 levels. “Completely removing all Covid-19 restrictions is the way forward, with Australia being the latest to do so this week. The major exception to the optimism of this rebound in travel is China, which saw a dramatic 73.2% fall in domestic travel compared to the previous year. “Its continuing zero-Covid policy is out-of-step with the rest of the world and it shows in the dramatically slower recovery of China-related travel.” According to Walsh, the “recovery in travel markets is no less than impressive.” He said: “As we accelerate towards the peak summer season in the Northern Hemisphere, strains in the system are appearing in some European and North American hubs. Nobody wants to see passengers suffering from delays or cancellations. But passengers can be confident that solutions are being urgently implemented. Airlines, airports and governments are working together; however, standing up the workforce needed to meet growing demand will take time and require patience in the few locations where the bottlenecks are the most severe. “In the longer term, governments must improve their understanding of how aviation operates and work more closely with airports and airlines. Having created so much uncertainty with knee-jerk Covid-19 policy flip-flops and avoiding most opportunities to work in unison based on global standards, their actions did little to enable a smooth ramping-up of activity. “And it is unacceptable that the industry is now facing a potential punitive regulatory deluge as several governments fill their post-Covid-19 regulatory calendars. Aviation has delivered its best when governments and industry work together to agree and implement global standards. That axiom is as true post-Covid-19 as it was in the century before.”

Qatar, the second-largest LNG exporter in 2021, exported 77mn tonnes, compared to 77.1mn tonnes in 2020, International Gas Union (IGU) said in its World LNG report – 2022. Qatar accounted for 21% exports market share last year, IGU noted. Australia remained the largest exporter in 2021, exporting 78.5mn tonnes, an increase of 0.7mn tonnes from 2020. Australia’s increase can be attributed to the restart of Prelude FLNG, which was shut down from February 2020 to January 2021 after an electrical problem. Another notable export market is the US, which exported 67mn tonnes in 2021. This marks a 50% increase (+22.3mn tonnes) in exports from 2020 (44.8mn tonnes). This growth was driven by increased utilisation at five large liquefaction trains that started commercial operations in 2020 (Cameron LNG T2–T3, Corpus Christi T3, Freeport LNG T2–T3). Egypt saw a five-fold increase in its exports from 1.3mn tonnes in 2020 to 6.6mn tonnes in 2021, owing to the restart of the Damietta LNG plant in early 2021. Russia remained at fourth place, exporting a total of 29.6mn tonnes in 2021, almost unchanged from 2020. Malaysia benefited from the commissioning of the PFLNG Dua with an increase in export of 1.1mn tonnes compared to 2020. In 2021, 6.9mn tonnes per year of liquefaction capacity came online, and no new markets started exporting. Global LNG trade grew by 4.5% from 2020-2021, reaching an all-time high of 372.3mn tonnes. A strong post-pandemic recovery resulted in a surge in LNG imports, even though the annual growth rate of 4.5% remains far from pre-Covid-19 levels of 13% in 2019. In 2021, the US remained the third-largest exporter of LNG at 67mn tonnes and Russia retained its spot as the fourth-largest exporter with 29.6mn tonnes of exports in 2021. The largest exporting region continued to be Asia Pacific with a total of 131.2mn tonnes of exports in 2021, in line with what was exported in 2020, IGU said. Some markets exported less volume in 2021 than in 2020 as a result of technical issues, declining feed gas production, and a lack of commercial progress on backfill projects. The most significant drops in export levels were seen in Nigeria (-4.1mn tonnes), Trinidad & Tobago (-3.9mn tonnes), Norway (-2.9mn tonnes) and Peru (-1.2mn tonnes). In 2021, Asia Pacific also continued to be the largest net importing region in 2021 at 155.7mn tonnes, marking an 8.6mn tonnes increase compared to 2020. Asia was the second largest net importing region at 116.8mn tonnes in 2021, an increase of 9.5mn tonnes compared to 2020. This growth was driven by the increase in net imports into China (+10.4mn tonnes) and Bangladesh (+0.9mn tonnes). The only new importing market in 2021 was Croatia, which imported 1.2mn tonnes of LNG in 2021.

Strength in Qatar’s non-oil sector will counterbalance the country’s oil sector weakness in 2022, Oxford Economics said in an economic commentary. Qatar's GDP grew at a 2.5% rate in the first quarter (Q1) of the year, up from 2.2% in Q4, 2021, Oxford Economics noted. Growth in non-oil sectors such as construction, transportation, and real estate led the expansion but was offset by mining and manufacturing declines. The latest Purchasing Managers Index (PMI) data continue to indicate an improvement in the non-oil sector, corroborating our view that the non-oil sector strength will offset oil sector weakness and boost overall growth this year. “We see Qatar's GDP growing at a 3.6% pace in 2022,” Oxford Economics said. In 2023, Oxford Economics said Qatar’s GDP will grow at 3.5%. Oxford Economics has projected that Qatar’s current account surplus (as a percentage of its GDP) will be 16.7 this year and 14.3 in 2023. The country’s fiscal balance (as a percentage of its GDP) will be 9.1 this year and 8.9 in 2023. Qatar’s inflation, Oxford Economics has projected to hit 3.9% this year and 1.9% in 2023. The June PMI survey for the three largest economies – Saudi Arabia, the UAE, and Qatar - continued to show strong non-oil private sector activity. The Saudi print at 57 was the highest in the past eight months with business activities improving even as cost pressures intensified, leading companies to pass on added costs to customers. The upturn in the non-oil economy is primarily coming from Saudi Arabia's construction sector, where output strengthened to a three-year high. In the UAE, cost pressures have reached an 11-year peak, with the ratio between input and output costs at a record high. That said, demand remains robust, with new orders increasing amid price promotions, Oxford Economics noted. In a recent report, Oxford Economics said the Middle East and North Africa (MENA) region possesses the financial and natural resources to transition towards low-carbon energy sources, Oxford Economics said in a report. By leveraging current economic diversification plans, the region can bridge the investment gap with "greener" capital stock. In doing so, some countries in the GCC could emerge as leaders in the fight against climate change. The report noted MENA has great potential for solar and wind energy, which can be harnessed with improvements in storage technology. The region also has potential for hydrogen and carbon capture, storage, and use (CCUS), it said.  

Beyond the Tarmac Jet fuel represents the single largest operational expense for the airline industry, which is expected to rise to 25% this year. Since jet fuel or aviation turbine fuel (ATF) represents the single biggest element of an airline's cost base, a marginal change in crude oil prices can significantly impact the industry’s profitability. Over the last 20 years, ATF averaged 25.6% of an airline’s operating costs, IATA data reveal. And that ranged from about 12.5% in 2002 up to 38% in 2008. At $192bn, fuel will be the industry’s largest cost item in 2022 (24% of overall costs, up from 19% in 2021). This is based on an expected average price for Brent crude of $101.2/barrel and $125.5 for jet kerosene, according to the International Air Transport Association. Airlines are expected to consume 321bn litres of fuel in 2022 compared with the 359bn litres consumed in 2019, the global body of airlines says. The jet fuel price started to rise sharply after Russia’s invasion of Ukraine in February. By the second week of May, the IATA jet fuel monitor showed that the price had gone over $176 per barrel, 11.6% more than a month earlier. This put the price at almost 150% more than the previous year although there were significant variations by region. Jet fuel prices were highest in North America, which accounts for 39% of global usage and where the price hit $200 per barrel. War in Ukraine is still keeping prices for Brent crude oil high. Nonetheless, fuel will account for about a quarter of costs in 2022, IATA noted. A particular feature of this year’s fuel market is the high spread between crude and jet fuel prices. This jet crack spread remains well above historical norms, mostly owing to capacity constraints at refineries. Under-investments in this area could mean that the spread remains elevated into 2023. Consequently, airlines hedge a large portion of their annual fuel consumption at lower oil prices in order to protect themselves from the volatility in oil prices. An issue that is on the minds of airline management teams at the moment relate to the rising cost of oil, and jet fuel in particular, noted Willie Walsh, IATA director general. “Fuel represents the single biggest element of an airline's cost base. So clearly, you know, this is something that airlines will be closely monitoring. “And given what we have seen over the last couple of years, it is unlikely that most airlines will have significant hedging in place to protect them against this increase in the oil price. So I think this will be a factor certainly playing into fares as we go through the year if the oil price remains high,” Walsh noted recently. According to OAG, a UK-based global travel data provider, fuel price can have a significant impact on airline costs and profitability given that it is a major cost component for airlines, and one priced in US dollars. At times of surging fuel prices one response by airlines has been to impose fuel surcharges on top of the base fares for flights. The sudden increase in the price of jet fuel in the first quarter of 2022 triggered the reintroduction of fuel surcharges by a number of airlines. The first were seen to impose fuel surcharges in March, effectively adding this element to the price of an airfare. On expectations for fuel surcharges for the rest of the year, OAG says, “Almost certainly we will see more surcharges and the levies may rise. Partly this is a function of rising demand for air travel as recovery gets underway, and therefore more demand for jet fuel, but it is also a result of supply-side issues. “Refineries, which haven’t needed to produce quantities of jet fuel that they used to before the pandemic, now need to increase production in an environment where there are competing calls on their capacity.” While fuel surcharges are not welcomed by passengers, they remain largely hidden as travellers are presented with the all-in price, OAG says. But for airlines, fuel surcharges are an effective means to address the sharp increase in fuel costs. Industry outlook remains rosy with people keen to fly in ever greater numbers around the world. Strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment in most countries, and expanded personal savings are fuelling a resurgence in demand that will see passenger numbers reach 83% of pre-pandemic levels in 2022. Clearly billions of dollars will be raised as fuel surcharges this year, allowing airlines to offset the extra costs, and ward off challenges to their financial recovery.

The North Field expansion that will include carbon capture and storage is expected to see the “most responsibly produced LNG” in the world, noted Shell CEO Ben van Beurden. Speaking in Doha Tuesday, van Beurden said, “This expansion is good news for Qatar… for the world… and for Shell. “Because this responsibly produced gas is consistent with Qatar’s energy sustainability strategy, and also for Shell’s strategy to become a net zero emission energy business by 2050.” He said "natural gas plays a role an important role in world wide transition to net zero emissions energy system." “If we switch from coal to gas for production of iron or steel, that can result in a reduction of CO2 equivalent, saving 38%. And that is very significant.” van Beurden said, “I thank His Highness for taking the decision to end the moratorium of the development of NF in 2017. It was a crucial step forward towards realising Qatar’s National Vision for 2030.” "I am honoured that Shell has been selected by QatarEnergy as a partner in the NFE project. Through its pioneering integration with carbon capture and storage, this landmark project will help provide LNG the world urgently needs at a lower carbon footprint. This agreement deepens our strategic partnership with QatarEnergy which includes multiple international partnerships such as the world-class Pearl GTL asset.” “We are committed to maximise the value of the LNG expansion for the State of Qatar and continue to be a trusted, reliable and long-term partner in Qatar’s continued progress,” van Beurden noted. QatarEnergy Tuesday announced the selection of Shell as partner in the North Field East (NFE) expansion project, the single largest project in the history of the LNG industry. The partnership agreement was signed at a ceremony in QatarEnergy’s headquarters by HE the Minister of State for Energy Affairs Saad Sherida al-Kaabi, also the President and CEO of QatarEnergy, and Ben van Beurden, in the presence of senior executives from both companies. Pursuant to the agreement, QatarEnergy and Shell will become partners in a new joint venture company (JV), in which QatarEnergy will hold a 75% interest while Shell will hold the remaining 25% interest. In turn, the JV will own 25% of the entire NFE project, which includes 4 mega LNG trains with a combined nameplate LNG capacity of 32mn tonnes per year.

  HE the Minister of State for Energy Affairs Saad bin Sherida al-Kaabi said other buyers could join the $29bn North Field expansion “if they add value”. Speaking to reporters in Doha Tuesday al-Kaabi, also the President and CEO of QatarEnergy said, “We had been in discussions with several buyers – or value added partners as well call it, around the world who have shown interest… and very eager interest I would say. “It depends on the value they add…if they add value they would come in. We are proceeding with the project, regardless. There could be some, if we find good opportunities and a win-win situation. We really are not in a rush to do that…there is no big need to do that.” On the “value added partners”, the minister noted, “Basically, they need to be a buyer of LNG… so they need to demonstrate that they can give us a price that is above the market price. This is because they will be coming into the best project that exists in the LNG business from a cost perspective and from a return perspective (in the world) and the largest ever built.” Al-Kaabi said QatarEnergy has very capable marketing organisations that are working on marketing these volumes – and the likes of Shell only add to additional marketing capability. The minister said QatarEnergy had finalised the selection of IOCs in the North Field East (NFE) Expansion project following its selection of Shell as a partner. QatarEnergy and Shell will become partners in a new joint venture company (JV), in which QatarEnergy will hold a 75% interest while Shell will hold the remaining 25% interest. This agreement is the fifth and last in a series of partnership announcements in the multi-billion dollar NFE project, which will raise Qatar's LNG export capacity from the current 77mn tonnes per year (mtpy) to 110 mtpy. The North Field East (NFE) expansion project is the single largest project in the history of the global LNG industry.

  QatarEnergy Tuesday announced the selection of Shell as a partner in the $29bn North Field East (NFE) expansion project, the single largest project in the history of the global LNG industry. The partnership agreement was signed at the QatarEnergy’s headquarters in Doha by HE the Minister of State for Energy Affairs Saad Sherida al-Kaabi, also the President and CEO of QatarEnergy, and Shell CEO Ben van Beurden in the presence of senior executives from both the companies. Pursuant to the agreement, QatarEnergy and Shell will become partners in a new joint venture company (JV), in which QatarEnergy will hold a 75% interest while Shell will hold the remaining 25% interest. In turn, the JV will own 25% of the entire NFE project, which includes four mega LNG trains with a combined nameplate LNG capacity of 32mn tonnes per year. Earlier, QatarEnergy had signed agreements with TotalEnergies, Exxon, ConocoPhillips and Eni for stakes in the North Field East expansion project. The agreement with Shell is the fifth and last in a series of partnership announcements in the multi-billion dollar NFE project, which will raise Qatar’s LNG export capacity from the current 77mn tonnes per year to 110mn tpy. In remarks at the signing ceremony, al-Kaabi said, “We are very pleased to have Shell join us as a partner in this mega project, to which we have committed ourselves. We have lived up to that commitment, as well as to our global reputation as a reliable and trustworthy energy provider. Today’s announcement marks the successful conclusion of the selection of our international energy company partners in the North Field East project, through which QatarEnergy and its partners reaffirm their commitment to the energy transition and to the safe and reliable supply of cleaner energy to the world.” The Minister noted, “We value our long and fruitful relations and strategic partnership with Shell, not just within the State of Qatar, but in many other locations around the world. And, as one of the largest players in the LNG business, they have a lot to bring to help meet global energy demand and security.” Al-Kaabi thanked the working teams from QatarEnergy and Shell, as well as the management and working teams of Qatargas. “We are always indebted to the wise leadership of His Highness the Amir Sheikh Tamim bin Hamad al-Thani, and to his continued guidance and support of the energy sector,” al-Kaabi added. On his part, Ben van Beurden said, "I am honoured that Shell has been selected by QatarEnergy as a partner in the NFE project. Through its pioneering integration with carbon capture and storage, this landmark project will help provide LNG the world urgently needs at a lower carbon footprint. “This agreement deepens our strategic partnership with QatarEnergy which includes multiple international partnerships such as the world-class Pearl GTL asset.” “We are committed to maximise the value of the LNG expansion for the State of Qatar and continue to be a trusted, reliable and long-term partner in Qatar’s continued progress.” The North Field Expansion plan includes six LNG trains that will ramp up Qatar’s liquefaction capacity from 77mnn tonnes per year to 126mtpy by 2027, following a second expansion (North Field South- NFS). Four trains will be part of the North Field East (NFE) and two trains will be part of North Field South project. Last month, al-Kaabi told reporters that QatarEnergy would announce partners for North Field South (NFS) expansion by the end of the year. NFS project will further increase the Qatar’s LNG production capacity to 126mn tonnes per year by 2027. With an expected production start date in 2027, the NFS project involves the construction of two additional mega LNG trains (with a capacity of eight mtpy each) and associated offshore and onshore facilities.

Emirates NBD expects oil prices to be high over the coming quarters, targeting Brent at $120/barrel on average in third quarter (Q3) and $115/b in Q4. Opec+ agreed to increase production in August by 648,000 barrels per day (bpd), effectively endorsing a plan announced earlier in June. According to Emirates NBD, there was no commentary in the Opec+ statement about whether the production adjustment, the group’s name for its coordinated production policies, would extend beyond September as, in principle; the increase for August would unwind all of the cuts made by Opec+ during the Covid-19 pandemic. Production targets for August at a national level have Saudi Arabia at 11mn barrels per day (bpd), a level it has only reached briefly in the past and most recently in April 2020 when it was locked in a price war with its now partner Russia. For the UAE, the target level of 3.179mn bpd should be achievable given the country has made substantial investment into its upstream capacity, hitting 4mn bpd of capacity back in 2020. Russia’s target level of 11mn bpd looks like a particular challenge to achieve given the country’s crude exports are set to be under sanction from the EU and are already being disrupted by firms choosing to self-sanction trade in Russian oil. “The absence of any discussion of what happens once all the pandemic-related cuts will be a concern for an oil market that is screaming out for additional barrels. Spot prices have come off since the start of June as financial markets generally price in an imminent global recession but time spreads, both in the futures and physical market, remain exceptionally tight,” noted Edward Bell, senior director (Market Economics) at Emirates NBD. Market signals for the health of demand in H2, 2022 and beyond are mixed. Early indications that the Zero-Covid induced slump in Chinese economic activity has bottomed could set up for a bounce in activity. At the same time growth in the US is evidently slowing: personal spending has come in lower than expected for May and a trend of slower growth looks to be firming up. “Even if there are broad downside risks to demand, we don’t think that they will outweigh the supportive factors for oil prices. “Opec+ is unlikely to be able to hit its targeted increase on aggregate over the next two months given most countries have been failing to hit their lower prior levels and how long Saudi Arabia can maintain production of 11mn bpd or higher is an open question,” Emirates NBD said.  

Qatari riyal’s peg to dollar will hold as the Qatar Central Bank has large foreign exchange (FX) reserves to support the currency, Allianz Trade said in its country report. Allianz Trade expects Qatar’s exchange rate stability to be maintained and price stability to be regained in 2022-2023. The Qatari riyal (QAR) is pegged at 3.64 to the dollar. According to Allianz Trade, the currency peg has ensured relative price stability since 2010. In 2021, however, headline consumer price inflation rose to over 6% year-on-year (y-o-y) at the end of the year owing to base effects (deflation a year earlier), higher energy prices and global supply-chain disruptions. “We expect these effects to be transitory and inflation to gradually fall back to around 2% at the end of 2022,” Allianz Trade noted. Qatar’s fiscal reserves are solid but rising public debt requires monitoring, it said. The country’s fiscal breakeven point has ranged between $35 and $55 per barrel of crude oil over the past decade. Hence the government has recorded large annual fiscal surpluses in most years, except for 2016-2017 when oil and gas prices had been persistently low for some time. Even in 2020, a small surplus of +1.3% of GDP was achieved. Allianz Trade estimates the surplus to have widened to around 3% in 2021, thanks to higher gas prices, and project continued robust surpluses in 2022-2023. Meanwhile, public debt rose from 25% of GDP in 2014 to 72% in 2020, in part due to declining nominal GDP. “Even though we expect the ratio to decline gradually over 2021-2023 in the wake of the economic recovery, it will remain elevated and should be monitored closely. Overall, however, Qatar will remain a large net external creditor, thanks to the huge foreign-asset position in the Qatar Investment Authority -QIA, a sovereign wealth fund currently estimated at approximately $350bn,” Allianz Trade said. External liquidity, it said will “remain unproblematic”. Qatar has recorded large, sometimes huge annual current account surpluses for more than two decades, with the exceptions of 2016 and 2020 when global oil and gas prices were particularly low. These surpluses have contributed to the build-up of the QIA. Allianz Trade estimates that higher oil and gas prices moved back the current account into a surplus of 5% of GDP or more in 2021 and that ratio should rise further in 2022-2023. Meanwhile, external debt is relatively high, estimated at around 120% of GDP, incurred by oil and gas investments since the 2000s, but repayment obligations are unlikely to present liquidity problems. The annual debt service-to-export-earnings ratio stands at a moderate 13% or so. Financial resources will remain strong. Combined FX reserves of the central bank and the QIA represent over 200% of annual GDP and cover more than 50 months of imports, Allianz Trade noted.

Rapid expansion in Qatar’s non-oil economy is seen in record high output, new orders and purchasing activity based on June’s headline Purchasing Managers' Index (PMI), National Bank of Kuwait has said in its latest economic update. Qatar’s headline PMI hit a new high in June of 67.5 (63.6 in May), NBK said. Elsewhere in the GCC region, in Kuwait, the parliamentary budget and closing accounts committee approved the FY22/23 budget based on spending of KD23.1bn (5% higher than the initial draft) and revenues of KD23.4bn, the latter also upwardly revised, on a higher oil price assumption of $80/barrel. A small surplus of KD0.3bn is expected, NBK said. Meanwhile, Moody’s rating agency expects the government to run fiscal surpluses over the next two years. This should lead to a stronger government balance sheet and fiscal buffers, NBK said. In Saudi Arabia, the unemployment rate continued to trend lower, falling to 10.1% in Q1,22 from 11% in Q4,21, but the labour participation rate worsened to 50.1% from 51.5% in the same period. Meanwhile, it was reported that Saudi Central Bank (SAMA) placed around SR50bn with local banks to ease a liquidity squeeze caused by credit outpacing deposit growth over the past two and a half years. Through May, credit growth stood at 14.1% year-on-year (y-o-y) while deposits rose by 8.9%. In the UAE, Dubai recorded 6.2mn visitors during January-May, almost three times as many compared to the same period in 2021 and only 14% below 2019 levels. Meanwhile, petrol prices in the UAE were raised again in July, for the fifth time this year. On oil, NBK noted Brent closed down 1.3% last week at $111.6/b (+43.5% ytd), with global recession fears outweighing further supply-side tightness concerns, this time due to outages in Libya. June was oil’s first monthly loss since November. Meanwhile, Opec+ ratified its earlier decision to fully unwind supply cuts by August at the higher monthly rate of 648,000bpd (in July and Aug). Beyond that, the alliance’s next move remains uncertain, NBK noted.

Qatar’s GDP has been forecast to grow at 5.1% this year, which according to Emirates NBD, if realised would mark the fastest pace of growth since 2014 and take the economy back above pre-pandemic 2019 levels for the first time. Last year Qatar’s GDP grew at 2.5%, following the -3.6% contraction seen in 2020, Emirates NBD noted. Growth in 2022 will be broad based, with robust expansions in both the hydrocarbons (3.5%) and non-hydrocarbons (6.0%) sectors, and while we anticipate that the headline expansion rate will slow next year, at 2.8% it will remain stronger than the 10-year average. “The 6% growth we forecast for the non-hydrocarbons sector would be the strongest in the GCC this year, driven by the ongoing recovery from the pandemic as activity gradually normalises, but also preparations for the World Cup and the event itself,” noted Daniel Richards, Emirates NBD MENA economist, who is the author of the report. The Qatar Financial Centre PMI survey has reflected the surge in activity as final preparations for the major global event, which begins in November, come to a head, with the June headline reading of 67.5 marking a record for the index. This was up from 63.6 in May and marked an average of 62.2 over the year to date. Output, new orders and purchasing activity were all at record highs, largely shrugging off the inflationary pressures which drove input prices to accelerate at the fastest pace in 21 months. A high level of backlogs of work suggest that activity will remain buoyant over the next several months, but firms are clearly wary of what happens after the FIFA World Cup Qatar 2022 as business optimism for beyond 12 months remained comparatively low, the Dubai-based bank said. Aside from the preparations for the event, which have helped support growth in key sectors such as construction for years, the World Cup will also drive a significant uptick in activity through the four weeks of games over November to December, with the tourism and hospitality sector set to be a key beneficiary. Visitor numbers to Qatar have risen strongly so far as compared to last year – at 413,645 there were some six times as many arrivals over January-April as compared to the corresponding period in 2021, reflecting the loosening of any restrictions on travel both domestically and internationally (Qatar was forced to reintroduce some restrictions on activity as the Omicron wave spread at the start of the year, which will have weighed on activity in the first quarter). However, visitor numbers were still down -48% as compared to pre-pandemic 2019, leaving significant upside potential even in just a normalisation of activity. With the World Cup set to see 1.2mn visitors over the month, according to Qatari predictions, the likelihood is that 2019 visitor levels will be met by year-end, which would provide a major fillip to growth, Emirates NBD said. “Qatar is not immune from the potential drags on activity that are facing the rest of the region – namely higher-than-usual inflation, tighter monetary policy and a stronger dollar – but the likelihood is that the substantial windfall generated by high gas prices will be more than sufficient for the government to support growth as it sees fit. We forecast a current account surplus of 18.3% of GDP this year, up from 5.2% in 2021. The Qatar Central Bank has hiked its benchmark interest rate in line with the Federal Reserve this year, but the liquidity boost from higher exports should offset this, while visitors for the World Cup are likely committed despite the relatively unfavourable exchange rate for tourists,” Emirates NBD noted. For domestic consumption, at 5.2% year-on-year (y-o-y) in May price growth is high compared to the long-run average as the flurry of World Cup-related activity stimulates demand and global pressures come into play, Emirates NBD added.

The development of ‘circular’ polymers with recycled plastic content, investing in advanced recycling facilities as well as the announcement of key regional initiatives focused on sustainability demonstrate significant progress by the GCC polymer industry and the region’s leadership to adopt the circular economy, according to the Gulf Petrochemicals and Chemicals Association (GPCA). A recent GPCA report, entitled ‘The Plastic Conversion Opportunity in the GCC: Moulding a Sustainable Future Towards a Plastics Circular Economy’ and released at the GPCA Plastics Conference held in Riyadh recently, identified challenges such as an uncompetitive recycled plastics market, inadequate knowledge about the circular economy, high investment requirements and the high cost of products made in a circular economy model as barriers to further progress. The report goes on to highlight unfavourable regulations, the complex international supply chain of the plastics industry as well as a lack of collaboration between stakeholders as obstacles to achieving a circular economy in the region. The circular economy presents an enormous opportunity, with the World Economic Forum predicting that it will yield up to $4.5tn in economic benefits in the years to 2030. On a GCC level, transforming the current linear model to a more circular approach can help drive progress on the Middle East Green initiative, the GCC governments’ national visions and enable regional signatories to meet their commitments to the Paris Agreement, while lowering emissions. According to speakers at the two-day at the GPCA Plastics Conference in Riyadh, less than 10% of the plastics produced globally are ever recycled due to the diversity and variability of plastics waste, contamination, gaps in the existing infrastructure, and new demands of advanced recycling. An effective strategic response must be designed to address these issues and prevent over $120bn from being lost through plastic waste annually, experts said. GPCA secretary-general Dr Abdulwahab al-Sadoun said, “With at least 30% of plastic products not recycled because of design issues, according to the World Economic Forum, GPCA believes that the transition to a circular economy will require designing new products that are easier to reuse and recycle as well as adopting new business models and service offerings. “Furthermore, the industry must promote recycling and the reuse of plastic products, which according to the WEF can extend the life of at least 20% of all plastic products. Greater collaboration, investing in research and innovation and adopting a life cycle approach will also be needed to enact change in the plastics circular economy in the region.”  

Beyond the Tarmac A decade ago, a South Korean airline Asiana B747F crashed following a fire in its cargo compartment. The aircraft was carrying a large automotive lithium ion battery, loaded next to a large quantity of flammable liquid. The scheduled cargo flight from Incheon International Airport, Incheon, South Korea, to Shanghai Pudong International Airport in China, crashed into the international waters about 130km west of Jeju International Airport after the flight crew reported a cargo fire and attempted to divert to Jeju International Airport. Aboard the aircraft were two pilots, both fatally injured, and the aircraft was destroyed. Immediately after the accident, search and rescue operations have been initiated, and about two hours after the accident, the South Korean Coast Guard recovered some floating debris and wreckage at the accident site. The Aviation and Railway Accident Investigation Board (ARAIB) determined the probable cause of this accident as follows: a fire developed on or near the pallets containing dangerous goods but no physical evidence of the cause of the fire was found. The fire rapidly escalated into a large uncontained fire, and this caused some portions of the fuselage to separate from the aircraft in midair, thereby resulting in the crash. More recently, Qatar Airways had a close call in one of its flights from the sub-continent to Doha, from a very small lithium battery. Fortunately, the Qatar Airways pilot took decisive action and made an emergency landing in Pakistan. The airline unloaded a container that had two bags burning. “We were very fortunate that it generated enough smoke to alert our pilot. And we did an emergency landing in an airport in Pakistan,” Qatar Airways Group chief executive HE Akbar al-Baker told reporters in Doha recently. “Most of the fires we have seen in our aircraft were due to undeclared, badly packed, and sometimes refurbished lithium batteries being loaded on the aircraft,” al-Baker noted. While shortage of capacity is a challenge, the bigger problem he said is shippers not declaring their consignments correctly. “Specifically, we must address the lithium battery threat. I am afraid that the industry will only wake up to this if there is a disaster.” Qatar Airways, al-Baker said is constantly flagging up this problem and is the launch customer for new fire-retardant containers. The national airline has ordered 400,000 fire resistant containers to carry lithium ion batteries among other highly flammable products. “Over the next two years, we will replace all our containers with the fire-retardant variety. They can contain a fire for up to four hours. “But not every airline can afford to do this. We must work harder to have robust regulations in place as soon as possible. We cannot allow a few agents that simply don’t care to put dangerous goods on an aircraft without declaring them,” al-Baker noted. Meanwhile, the International Air Transport Association (IATA) called on governments to further support the safe carriage of lithium batteries by developing and implementing global standards for screening, fire-testing, and incident information sharing. As with many products shipped by air, effective standards, globally implemented, are needed to ensure safety. The challenge is the rapid increase in global demand of lithium batteries (the market is growing 30% annually) bringing many new shippers into air cargo supply chains. A critical risk that is evolving, for example, concerns incidents of undeclared or mis-declared shipments. IATA has long called for governments to step-up enforcement of safety regulation for the transport of lithium batteries. This should include stiffer penalties for rogue shippers and the criminalisation of egregious or wilful offences. It has also asked governments to shore up those activities with additional measures. IATA’s Director General Willie Walsh said: “Airlines, shippers, manufacturers, and governments all want to ensure the safe transport of lithium batteries by air. It’s a joint responsibility. The industry is raising the bar to consistently apply existing standards and share critical information on rogue shippers. But there are some areas where the leadership of governments is critical. “Stronger enforcement of existing regulations and the criminalisation of abuses will send a strong signal to rogue shippers. And the accelerated development of standards for screening, information exchange, and fire containment will give the industry even more effective tools to work with.” According to the United States Federal Aviation Administration (FAA), there were many air/airport incidents involving lithium batteries carried as cargo or baggage that have been recorded since March 1991. Most of these incidents included smoke, fire, extreme heat or explosion involving lithium batteries or unknown battery types. Incidents have included devices such as e-cigarettes, laptops, cell phones, and tablets. The severity of these incidents ranged from minor injuries to emergency landings. Unless something is done to prevent similar disasters due to fire in cargo hold caused by lithium batteries, the FAA says such crashes are all but inevitable in future!

Qatar Aircraft Catering Company (QACC) is set to scale up production capacity to 500,000 meals per day by 2026 to meet the "rapid and steady" growth of the national airline. Currently, the Qatar Airways subsidiary has the capacity to produce 175,000+ meals per day in its state-of-the-art facility at Hamad International Airport, measuring 69,000sq m, according to company’s annual report for 2021-22. QACC consistently aims to achieve the highest possible quality, safety and security standards for customers, partners and employees. Its skilled culinary experts are “dedicated to producing and delivering outstanding food experience to customers on a daily basis.” During the 2021/2022 financial year, QACC achieved our one-year sustainability target by recycling more than 1mn kilograms of plastic waste and donating more than 100,000 pieces of goods and surplus food supplies to people in need across the globe. The group’s catering company is working hard to decrease waste generation and improve rates of waste diversion from landfill. The ambition for a ”greener QACC” remains a high priority, hence it continually seeks innovative methods to reduce the overall carbon footprint by applying green building standards in its new facility construction, wherever possible. These include installing energy efficient equipment in its new state-of-the-art catering facilities, including washing systems, which significantly reduce water, energy and detergent consumption and efficient refrigeration units. Lessening the QR equipment and linen loading weight by almost 257 tonnes, which ultimately contributes to a reduction in aircraft fuel consumption and carbon dioxide emissions. Decreasing the usage of “single-use” plastic is another such green initiative. QACC has also started implementing paperless process through innovative technology. Such as automating crew handover sheets, delivery notes and Critical Control Point documents (CCP) – a procedure applied to eliminate hazard that might occur during food preparation and handling. To reduce the volume of imported goods, QACC has developed “strong relations” with local fruit and vegetable suppliers. QACC is the first in the group to achieve ISO 14001:2015 certification and to be recognised by the group for environmental sustainability programmes. The current renovations entail the installation of fully automated and sustainable industrial equipment, which will enhance product quality, improve delivery efficiency and increase production capacity, the annual report said.

Higher energy prices should see Qatar’s budget surplus widen to 12.8% of GDP this year from 0.2% of GDP in 2021, according to National Bank of Kuwait (NBK). The Ministry of Finance announced a moderately expansionary budget for FY22/23, raising spending by 5% on higher capital and current expenditure outlays compared to the previous budget, as it looks to strike a balance between greater fiscal restraint going forward and supporting economic growth and development objectives, NBK said. Realised revenues are likely to be substantially higher than budget approximations, which are based on a conservative oil price of $55/barrel. The economic recovery would allow the government to unwind the remainder of its Covid-19 support measures, including the blanket loan moratorium, NBK said in a recent country report. Qatar’s economy returned to growth in 2021, with GDP up 1.5%, on stronger consumer demand and lessening Covid-19 disruptions. The swift recovery was underpinned by government support measures (a $21bn stimulus package followed by a rapid vaccination rollout) and higher energy prices. Growth is expected to accelerate to 3.7% in 2022 as the non-oil sector expands 5.5% amid a boost to the travel, hospitality, logistics and business support sectors from the FIFA World Cup. The event could attract around 1.5mn visitors in November-December, equivalent to 50% of the country’s population of almost 3mn. Improved private sector activity was evident in the purchasing managers’ index survey reading for April, which reached an all-time high of 63.6 led by reportedly strong conditions in the construction sector and rising work backlogs. Robust and broad-based credit growth of 11% in 2021 also points to an expanding private sector, while activity in the real estate market has shown signs of recovery after several years of decline. The Qatar Central Bank’s (QCB) real estate price index gained 2.6% year-on-year in March 2022. Underpinning the medium-term outlook for the non-oil economy is the ambitious Qatar National Vison 2030 programme of large infrastructure investments in strategic sectors such as manufacturing, finance, and tourism. While some $30bn in natural gas-related projects are planned, NBK said it does not expect to see major output gains until the first phase of the North Field gas expansion project is complete in 2026, which should deliver a 43% increase in LNG volumes to 110mn tonnes per year and bolster Qatar’s position as the leading global LNG exporter. According to NBK, previously strong debt issuance ($18.6bn in bonds and sukuk in 2021) could moderate in 2022 with little need for deficit financing and amid a rising interest rate environment. “However, Qatar will still likely make sizeable debt issuances over the medium term to finance its gas expansion plans,” NBK said. A solid economic growth outlook, coupled with higher hydrocarbon receipts, should see the public debt ratio ease over the medium term. Gross central government debt (excluding GREs) is expected to fall to 47% of GDP in 2022 from 55% in 2021. Qatar’s credit standing remains robust (AA- by Fitch), backed by large external reserves and a good track record of effective policy-making, NBK noted.

Despite being based in a region prone to disruption, Gulf Co-operation Council (GCC) banking systems have remained remarkably stable, S&P Global Ratings has said in a report. In its latest report, S&P Global Ratings noted the largest funding item – private domestic deposits – has increased year-on-year over the past three decades despite a series of disruptive regional events, including Yemeni civil wars, the Arab Spring uprisings, the Iraq War, and several Houthi missile attacks. Only the 1990 Gulf War led to a decline in private sector domestic deposits and, while external funding has proven less stable, related withdrawals has only been temporary. “To test this resilience, we analysed GCC bank performance in a series of hypothetical stress scenarios,” S&P Global Ratings said. "While the nature of the threat or shock – for example whether there is a direct physical threat – is clearly important, we think various factors explain the historical resilience of GCC bank funding. Notably, large outward remittances have reduced the stock of potentially less stable deposits and confidence boosting actions by public sector entities have helped reduce domestic funding volatility during shocks," said S&P credit analyst Benjamin Young. "Even though some vulnerabilities are on the rise, including continued external funding growth, a potentially increasing proportion of expatriate deposits, and reduced coverage from potentially supportive sovereign assets to funding bases, our hypothetical stress scenarios show that GCC banks can withstand substantial external funding outflows without additional support."    

Oman Air will join the oneworld alliance, further strengthening the premier airline alliance’s leading position in the Middle East. Based in Muscat, Oman Air was elected as a oneworld member designate in Doha by the oneworld governing board, comprising the chief executives of all oneworld member airlines. oneworld member Qatar Airways will act as sponsor for Oman Air’s entry into oneworld, providing guidance and support as the airline integrates into the alliance. Oman Air is expected to be implemented into oneworld in 2024, following which it will provide the full range of oneworld benefits to customers travelling on its flights. Members of Oman Air’s ‘Sindbad’ frequent flyer programme will be able to earn and redeem miles on all oneworld member airlines, with top tier members receiving additional benefits including lounge access when travelling with other oneworld members. Oman Air’s entry into oneworld will provide even more flights and destinations to customers planning global travel across the alliance’s members, making oneworld the only global airline alliance with three members in the Middle East after Qatar Airways and Royal Jordanian. Oman Air’s joining will add new destinations to the oneworld network including Duqm and Khasab in Oman and Chittagong (Bangladesh). oneworld Emerald, oneworld Sapphire and premium cabin customers will also gain access to three Oman Air lounges at Muscat, Salalah and Bangkok. Launched in 1993, Oman Air is the national carrier of the Sultanate of Oman. From its roots as a domestic airline, it has transformed into an international carrier serving 41 destinations in more than 20 territories. It operates a modern fleet of more than 40 aircraft comprising Boeing 737s, 787s and Airbus A330s. Oman Air operates to five oneworld member airline hubs – Amman, Colombo, Doha, Kuala Lumpur and London Heathrow – and already codeshares with four oneworld member airlines: Malaysia Airlines, Qatar Airways, Royal Jordanian and SriLankan Airlines. Joining oneworld will pave the way for additional codeshare opportunities, further enhancing global connectivity across the alliance’s network. Following its entry into oneworld, Oman Air will be the third new member of the alliance in five years, marking another achievement in oneworld’s rapid growth. Royal Air Maroc joined the alliance in April 2020, adding oneworld’s first full member in the African continent. This was followed by Alaska Airlines in March 2021, making oneworld the only global airline alliance with two members in the United States. oneworld governing board Chairman and Qatar Airways Group Executive HE Akbar al-Baker said: “Today marks a new milestone in oneworld, as our friends at Oman Air become a member elect of our award-winning alliance. Passengers of Oman Air will be offered a seamless travel journey, connecting them to more than 900 destinations across 170 countries. As the chairman of oneworld, we look forward to welcoming Oman Air into our alliance as they will bring great benefits, allowing passengers to discover not just a new member with an excellent reputation, but a beautiful country.” oneworld CEO Rob Gurney said: “We are delighted that Oman Air has chosen oneworld as its global airline alliance partner. With its network in Muscat and award-winning customer service, Oman Air will reinforce our position as the premier airline alliance for global travellers. As the global travel industry continues to recover from the pandemic, the significant growth of oneworld in recent years demonstrates how important alliances and partnerships will continue to be.” Oman Air CEO Abdulaziz al-Raisi said: “Oman Air's admittance into oneworld represents a defining moment in our journey to provide passengers with greater travel options through our developing partnerships and alliances. We're delighted to be joining the world's foremost airline alliance at a time when demand for travel is on the rise. “We look forward to welcoming oneworld members onboard Oman Air to experience the height of Omani hospitality and all that the Sultanate of Oman has to offer in terms of history, culture and natural beauty.”