Kuwait Business Forecast Report Q3 2013

Date: May 3, 2013
Pages: 51
Price:
US$ 1,195.00
Publisher: Business Monitor International
Report type: Strategic Report
Delivery: E-mail Delivery (PDF)
ID: KBF095DD453EN
Leaflet:

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Includes 3 FREE quarterly updates

Core Views

We expect Kuwait to see relatively strong growth over 2013, as non-oil economic activity continues to expand on the back of solid household expenditure. Our forecast for 2013 real GDP growth is unchanged at 3.0%, down from 8.2% in 2011 and an estimated 5.2% in 2012. While we now expect a marginal increase in oil exports, we note that progress on Kuwait's capital investment plans has so far been disappointing, and have revised down our forecasts for government spending and fixed investment.

Kuwait has seen a flurry of populist legislation over the last few weeks, including several measures specifically targeting expatriate workers. This runs the risk of increasing uncertainty within the private sector, as well as cementing perceptions of the country as a hub of policy instability. We note that while pro-government MPs hold a majority of seats in the new parliament, tensions remain between the government and the legislative branch.

Major Forecast Changes

Kuwait's budget surplus for FY2012/13 (fiscal year running from April 2012 to March 2013) is likely to reach a new record high. We have raised our estimate for the FY2012/13 budget balance to 31.0% of GDP (KWD14.5bn), up from 28.3% in 2012. We forecast a slightly lower surplus of KWD12.7bn for FY2013/14, equivalent to 26.5% of GDP. Despite the government's renewed control of the legislative branch, progress with capital spending plans has so far been limited.

Consumer price inflation in Kuwait has stayed largely subdued of late, with a decline in international food prices helping to offset higher non-food inflation. We see inflationary pressures remaining weak over the rest of the year, and project the headline print to average 3.0% in 2013 – down from our previous forecast of 4.0%.

Key Risks To Outlook

As ever, given the economy's heavy dependence on oil, any sustained downturn in global energy prices would prove disastrous. That said, Kuwait has the financial wherewithal to cope with any short-term volatility in oil prices. Therefore the underlying risks in this regard are minimal.

Our forecasts assume that the implementation of the government's development plans will be slow owing to the impact of bureaucratic gridlock. However, the state certainly has the firepower to move forward with its capital spending plans if political compromises can be reached. Furthermore, the regime's renewed domination of parliament, following legislative elections in December, offers the prospect of an acceleration of long-delayed economic reforms and infrastructure projects. Any improvement on this front would pose upside risks to our growth forecasts, as well as downside risks to our budget surplus projections.
EXECUTIVE SUMMARY

Core Views
Major Forecast Changes
Key Risks To Outlook

CHAPTER 1: POLITICAL OUTLOOK

SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Populist Measures On The Rise
Kuwait has seen a flurry of populist legislation over the last few weeks, including several measures specifically targeting expatriate workers. This runs the risk of increasing uncertainty within the private sector, as well as cementing perceptions of the country as a hub of policy instability. We note that while pro-government MPs hold a majority of seats in the new parliament, tensions remain between the government and the legislative branch.
  TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Democracy: No Turning Back
Kuwait's political backdrop is complicated by labour and population imbalances, as well as a parliament which has consistently blocked the government's reform efforts. Meanwhile, with five dissolutions of the National Assembly and subsequent elections since 2006, the prospect of new polls and policy instability is always on the horizon.

CHAPTER 2: ECONOMIC OUTLOOK

SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth To Remain Robust, For Now
We expect Kuwait to see relatively strong growth in 2013, as non-oil economic activity continues to expand on the back of solid household expenditure. Our forecast for 2013 real GDP growth remains unchanged at 3.0% , down from 8.2% in 2011 and an estimated 5.2% in 2012. While we now expect a marginal increase in oil exports, we note that progress on Kuwait's capital investment plans has so far been disappointing, and have revised down our forecasts for government spending and fixed investment.
  TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Fiscal Surpluses Still Elevated
Kuwait's budget surplus for FY2012/13 (fiscal year running from April 2012 to March 2013) is likely to reach a new record high. We have raised our estimate for the FY2012/13 budget balance to 31.0% of GDP (KWD14.5bn), up from 28.3% in 2012. We forecast a slightly lower surplus of KWD12.7bn for FY2013/14, equivalent to 26.5% of GDP. Despite the government's renewed control of the legislative branch, progress with capital spending plans has so far been limited.
  TABLE: FISCAL POLICY
Monetary Policy
Inflationary Pressures To Remain Weak
Consumer price inflation in Kuwait has stayed largely subdued of late, with a decline in international food prices helping to offset higher non-food inflation. We see inflationary pressures remaining limited over the rest of the year, and project the headline print to average 3.0% in 2013 - down from our previous forecast of 4.0%.
  TABLE: MONETARY POLICY
Banking Sector
Upturn To Continue Over 2013
The recovery in the Kuwaiti banking sector is expected to continue over 2013, and we forecast credit growth to reach 7.0% by the end of the year, up from 3.1% in 2012. Commercial banks should benefit from resilient domestic consumption, while the government's renewed control of the legislative branch offers the prospect of an advance in capital expenditure, providing greater lending opportunities and higher risk diversification.
  TABLE: BANKING SECTOR OVERVIEW
Regional Outlook
GCC Subsidies: An Untenable System
Governments in the Gulf Cooperation Council have long relied on universal price subsidies to advance social and political objectives. By encouraging inefficient consumption patterns and reducing the incentives for investment in the hydrocarbon sector, however, subsidies are blunting oil and gas exports - the main source of government revenue. We argue that while political considerations will continue to restrain subsidy reform over the medium term, consolidation efforts appear largely inevitable over the longer term.

CHAPTER 3: 10-YEAR FORECAST

The Kuwaiti Economy To 2022
Long-Term Forecasts: A Closer Look
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2022, keeping the government in surplus.
  TABLE: LONG-TERM MACROECONOMIC FORECASTS

CHAPTER 4: BUSINESS ENVIRONMENT

SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
  TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
Infrastructure
  TABLE: BMI LEGAL FRAMEWORK RATING
  TABLE: LABOUR FORCE QUALITY
Market Orientation
  TABLE: MENA - ANNUAL FDI INFLOWS
  TABLE: TOP EXPORT DESTINATIONS, US$MN
  TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk

CHAPTER 5: KEY SECTORS

Defence & Security
  TABLE: KUWAIT'S DEFENCE EXPORTS, 2010-2017 (US$MN)
  TABLE: KUWAIT'S DEFENCE IMPORTS, 2010-2017 (MN)
Freight Transport
  TABLE: AIR FREIGHT
  TABLE: MARITIME FREIGHT
Other Key Sectors
  TABLE: AUTOS SECTOR KEY INDICATORS
  TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
  TABLE: FOOD AND DRINK SECTOR KEY INDICATORS
  TABLE: PHARMA SECTOR KEY INDICATORS
  TABLE: TELECOMS SECTOR KEY INDICATORS

CHAPTER 6: BMI GLOBAL ASSUMPTIONS

Global Outlook
Lowering Our US And Eurozone Growth Forecasts
  TABLE: GLOBAL ASSUMPTIONS
  TABLE: DEVELOPED STATES, REAL GDP GROWTH,%
  TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS,%
  TABLE: EMERGING MARKETS, REAL GDP GROWTH,%
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