Kuwait Business Forecast Report Q1 2015

Date: October 18, 2014
Pages: 51
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Kuwait Business Forecast Report Q1 2015
Includes 3 FREE quarterly updates

Core Views

We expect the Kuwaiti economy to perform relatively well over 2015 and 2016, and retain our forecast for real GDP growth of 2.7% and 2.5% respectively, from an estimated 2.9% in 2014. After a long period of stagnation, the Kuwaiti investment outlook appears to be improving, while the prospects for consumption remain bright. However, we again highlight Kuwait's ever-volatile political situation as the key downside risk to economic activity.

Kuwait has seen a flurry of populist legislation recently, 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 expect tensions to remain between the government and the legislative branch, even with the election of a renewed 'loyalist' parliament.

We forecast consumer price inflation in Kuwait to average 3.8% and 4.0% in 2015 and 2016 respectively, up from 3.0% in 2014. While we expect a slight fall in Kuwaiti food inflation over the near term on the back of lower global prices, a tight supply picture in the real estate market will fuel housing inflation over the coming quarters, in a trend seen across the Gulf Cooperation Council.
Executive Summary
Core Views
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Index
Domestic Politics
Political Risk: One Step Forward, Two Steps Back
Political risks will remain the key threat to Kuwait's economic growth over the coming years, particularly for fixed investment. While the
government has a more loyalist National Assembly than in any time in its recent history, rumours of an attempted coup and corruption
allegations will ensure that political intransigence remains a key block to reform.
Long-Term Political Outlook
Democracy: No Turning Back
Kuwait's political backdrop is complicated by labour and population imbalances, as well as a parliament that has consistently blocked
the government's reform efforts. Meanwhile, with six dissolutions of the National Assembly and subsequent elections since 2006, the
prospect of new polls and policy instability is always on the horizon.


SWOT Analysis
BMI Economic Risk Index
Economic Activity
Lagging The Rest Of The GCC
Kuwait's economy will grow at a modest pace over the coming quarters as the dominant oil sector weighs on headline growth. While net
exports will see only marginal growth, private consumption and investment activity will pick up, partly on the back of low base effects.
We forecast real GDP growth of 2.9% in 2014 and 2.7% in 2015, from an estimated 3.1% in 2013.
  Table: GDP By Expenditure
Fiscal Policy
Huge Surpluses Mask Longer-Term Problems
Kuwait will continue to record huge budget surpluses over the coming years as oil revenues remain elevated and capital spending is
hamstrung by political paralysis. We forecast the budget surplus to come in at 20.6% of GDP in FY2014/15 and 17.4% in FY2015/16.
We do not expect any significant reform of subsidies for nationals, and current spending will therefore continue to grow strongly.
  Table: Fiscal Policy
Banking Sector
Promising Outlook Starting To Materialise
We expect the recovery in Kuwait's banking sector to continue over H214 and into 2015, and forecast credit growth to reach 7.5% by
the end of the year, up from 6.3% in 2013. Commercial banks will benefit from resilient domestic consumption, while the government's
relative control of parliament is likely to ensure further progress in capital expenditure.
Monetary Policy
Housing Costs To Push Inflation Higher
Kuwait's consumer price inflation will average 3.0% and 3.8% in 2014 and 2015 respectively, from 2.5% in 2013. We expect the housing
market to increasingly account for inflationary pressure as food prices remain in deflation for the rest of the year.
Islamic Banking
New Markets To Emerge, But Impediments To Restrain Growth
We maintain our bullish outlook on the global Islamic banking sector over the coming years. However, we believe that growth rates have
peaked and highlight numerous obstacles to the sector gaining global precedence.
Regional Economic Outlook
GCC: A Decade Of Diversification Ahead
Economic growth in the Gulf Cooperation Council will slow over the coming decade as weaker oil prices and marginal gains in oil output
weigh on the all-important hydrocarbons sector. Further gains will be driven by the non-oil private sector, and we expect a shift in the
shape of growth towards private consumption and away from the export-driven model that has been in place since 2000. In addition, we
expect diversification efforts to gather pace, partly due to fiscal pressure. Saudi Arabia and Oman are best placed in this regard, while
Kuwait will remain behind.


The Kuwaiti Economy To 2023
High Wealth, Yet Challenges To Growth
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2023,
keeping the government in surplus.
  Table: Long -Term Macroeconomic Forecasts


SWOT Analysis
Operational Risk Index
Operational Risk
  Table: Operational Risk
Transport Network
  Table: Transport Network
Economic Openness
  Table: Economic Openes
  Table: Top Five Trade Partners & Product Imports (USDmn unles otherwise stated )


Oil & Gas
  Table: Oil Production, 2012-2017
  Table: Oil Production, 2018-2023
  Table: Gas Production, 2012-2017
  Table: Gas Production, 2018-2023
Other Key Sectors
table : Pharma Sector Key Indicators
table : Telecoms Sector Key Indicators
  Table: Defence & Security Sector Key Indicators
  Table: Food & Drink Sector Key Indicators
table : Freight Key Indicators


Global Outlook
Big Emerging Market Revisions
  Table: Global Assumptions
  Table: Developed States , Real GDP Growt H, %
  Table: Emerging Markets , Real GDP Growth , %
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