Kuwait real GDP to grow 3.2pc in 2013
Kuwait, February 3, 2013
Kuwait's real GDP is expected to grow at 3.2 per cent and 2.5 per cent in 2013 and 2014 respectively on the back of stable oil production and an expected improvement in the broader business climate domestically, said a report by National Bank of Kuwait (NBK).
The budget is forecast to remain in huge surplus, though it will decline to under 20 per cent of GDP over the next two years as oil revenues plateau but spending pushes higher, according to its review.
The country's biggest lender has revised up its forecast for real non-oil GDP in 2013 to 5 per cent from 4 per cent, reflecting an expected improvement in the broader business climate domestically, which is also likely to be maintained going into 2014.
The upward revision is based largely on signs of a greater determination by Kuwaiti authorities to implement large infrastructure projects associated with the government’s four-year development plan that had previously stalled, the report stated.
These include projects in the transport, power and oil refining sectors which should ease the economy’s dependence on growth in the consumer sector, which will nevertheless remain firm thanks to high employment levels and fresh government measures to support income growth, it added.
According to NBK, these trends will add to Kuwait’s traditional strengths of large fiscal and trade surpluses, which will provide a buffer against any fresh turbulence in the global economy.
However, the Kuwaiti lender warned that challenges remain as large projects carry significant implementation risks – particularly those with more complex structures such as the public-private partnerships (PPPs).
"Moreover, the economy faces broader long-term challenges, most notably the need to create viable private sector jobs for new entrants to the workforce. The latter requires deep-rooted structural reforms in areas such as competition and privatization, the labor market, and education. Despite the surpluses, fiscal reform is also needed to put the budget on a stable long-term footing," it stated.
NBK pointed out that the country's inflation was expected to average 3-4 per cent over the next two years.
After falling in FY11/12, on-budget capital spending is assumed to rise steadily over the next two years on faster project implementation, but should remain close to 10 per cent of total government spending, said the report.
Current spending could rise by 18 per cent in FY12/13 on increases in public sector pay and social spending, but growth slows thereafter.
Meanwhile, strong oil receipts are expected to keep the current account surplus extremely strong over the forecast period at 35-45 per cent of GDP, implying a continued build-up in Kuwait’s foreign assets.
NBK pointed out that after another year of double-digit growth in 2012, the oil production is set to be flat in 2013.
The production levels have reached close to their maximum of 3.3 million barrels per day and softer global oil market fundamentals are assumed to prompt Opec to stabilize its output near current levels, it stated.
This will push the headline rate of real GDP growth down to 3.2 per cent from 6.1 per cent in 2012, said the top Kuwaiti bank.
The GDP growth is assumed to slow further in 2014 on cuts in oil output, but the broader business climate remains positive, it added.
On the inflation part, NBK said despite robust conditions in the consumer sector, the inflation continued to decelerate through 2012, falling to just 2.1 per cent in October mainly driven by the food and housing components.
But other ‘core’ components remain soft, too. Some of this may reflect the lagged impact of earlier dinar strength against the euro and other currencies in lowering import prices, said the top lender.
This is assumed to gradually unwind and as demand conditions steadily strengthen, we expect some limited upward price pressures in 2013. But inflation is still seen averaging a moderate 3-4 per cent over the next two years, it added.-TradeArabia News Service