Kuwait non-oil GDP growth seen at 4.5pc
Kuwait, January 8, 2014
Kuwait's non-oil GDP is expected to grow at 4.5 per cent in 2014 and 2015 compared to last year's 4 per cent mainly on the back of high oil prices, large fiscal and trade surpluses and government’s vast financial reserve, said a report.
However, overall GDP will decrease by 0.6 per cent in 2014 due to a projected fall in oil production, before rising by 3.1 per cent in 2015, stated National Bank of Kuwait (NBK) in its report.
According to NBK, the soaring oil prices, large fiscal and trade surpluses, and the government’s vast financial reserves continue to provide a positive near-term backdrop for the Kuwaiti economy, it stated.
"Although the headline rate of economic growth will look weak in 2014, this is entirely driven by cuts in oil output; non-oil growth, while far from firing on all cylinders, is forecast to improve slightly to 4.5 per cent thanks to better project execution and continued strength in the consumer sector," said the top lender in its report.
"Both of these factors could disappoint, however, resulting in softer economic growth than forecast. We expect gradual progress on much-needed economic reforms to boost private investment levels and improve the economy’s longer-term performance," it added.
NBK pointed out that the consumer sector remained an important growth driver, but there were signs that growth may be softening a little.
Consumer credit growth has come off its peak (though remains strong), employment growth has eased, and the impact of earlier increases in wages and benefits may be fading.
Early figures also suggest that take-up of debt relief under the Family Fund law implemented in the fourth quarter of 2013 has been much lower than the KD0.8 billion in loans applicable under the scheme.
The boost to disposable incomes and additional lending will therefore be smaller than initially assumed.
Following a brief cut in the first quarter of 2013, crude oil output rebounded to around 3 million bpd in mid-year, close to its full capacity.
As demand weakens and non-Opecsupply continues to rise, we expect Opec – including Kuwait – to cut output significantly in the first half of 2014 in order to balance the market and keep prices close to $100 pb.
According to NBK, the real hydrocarbon GDP will fall by 4 per cent in 2014 before registering a small rise in 2015.
The inflation is expected to rise from 2.6 per cent in 2013 to 3 per cent in 2014, and then settle at 3.5 per cent in 2015.
Despite continued strength in the consumer sector, inflation remained low through 2013, averaging 2.7 per cent in the first 10 months. This was in spite of a pick-up in housing rent pressures, which were more or less offset by decelerating inflation in the food segment. Inflation in the remaining segments – sometimes thought of as ‘core’ – reached just 0.7 per cent y/y in August, its lowest for years, said the Kuwait lender.
NBK said some upward drift in inflation were likely in 2014, as core pressures rise and food price inflation stabilizes. But inflation should remain in the 3-4 per cent range over the next two years, it added.
The budget is set to record another huge surplus in FY 2013/14, at 22 per cent of GDP. This is slightly down from the 25 per cent of GDP recorded a year earlier. Oil revenues are expected to dip slightly on softer oil prices while spending posts a small rise of 4 per cent, said the Kuwaiti bank in its report.
"Comments from senior government ministers in late 2013 about the need to control growth in subsidy payments suggest that the government will maintain tighter control of spending in future, compared to the 15 per cent average annual increase seen over the past decade. So long as oil prices remain high, this will limit the decline in the surplus going forward," stated the NBK report.
"A similar moderation is likely in Kuwait’s giant current account surplus, due to a combination of peaking oil receipts and rising imports. But the surplus will remain above 30 per cent of GDP," it added.-TradeArabia News Service