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Kuwait Business Forecast Report Q3 2014

  • April 2014
  • -
  • Business Monitor International
  • -
  • 46 pages

Core Views

We expect the Kuwaiti economy to perform relatively well over 2014, and retain our forecast for real GDP growth of 2.9%, from an estimated 3.0% in 2013. 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 some tensions to remain between the government and
the legislative branch, even with the election of a renewed ‘loyalist’ parliament.

We forecast average consumer price inflation for Kuwait of 3.0% and 3.5% for 2013 and 2014 respectively, up from 2.9% in 2012. 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 GCC.

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, and therefore the underlying risks in this regard are minimal.

Table Of Contents

Kuwait Business Forecast Report Q3 2014
Executive Summary 5
Core Views 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Nationalisation Policies Unlikely To Be Implemented Fully 8
We believe the Kuwaiti government's announcement that police will no longer be able to deport expatriates without interior ministry
approval is a sign that workforce nationalisation policies will be watered down. As well as being difficult to enforce, we believe
'Kuwaitisation' will be detrimental to economic growth and worsen the business environment.
Table: POLITICAL OVERVIEW 8
Long-Term Political Outlook 9
Democracy: No Turning Back 9
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 six 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 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Turning Bullish On Investment Outlook 14
We expect the Kuwaiti economy to perform relatively well over 2014, and retain our forecast for real GDP growth of 2.9%, from an
estimated 3.0% in 2013. After several quarters of stagnation, the investment outlook has improved and prospects for consumption
remain bright. However, we flag Kuwait's ever-volatile political situation as the key downside risk to economic activity.
Tab le: ECONOMIC ACTIVITY 14
Fiscal Policy 16
New Budget: Few Changes To Fiscal Policy 16
We forecast Kuwait's budget surplus to narrow to 17.9% of GDP in FY2014/15, from a projected 21.0% for FY2013/14. Lower crude
prices and near-flat non-oil revenue growth will lead to a decline in government income.
Table: FISCAL POLICY 17
Banking Sector 18
Banking Sector: Lending Opportunities Expanding 18
The outlook for Kuwaiti commercial banks is brightening, as moderate signs of progress in the government's development plans herald
the prospect of new lending opportunities.
Table: BANKING SECTOR OVERVIEW 18
Monetary Policy 19
Rising House Prices To Drive Inflation 19
We forecast Kuwait's consumer price inflation to average 3.5% and 4.0% in 2014 and 2015 respectively, from 3.0% in 2013. We
anticipate the trend of global lower food prices to be coming to an end, and see some risks of a food price spike.
Tab le: MONETARY POLICY 19
Islamic Finance 20
Islamic Banking: New Markets To Emerge 20
We expect 2014 to be a key year for the global Islamic finance industry as several new markets come to the fore. It has been our longheld
view that rather than becoming an integrated global financial system, Islamic banking will see the creation of regional hubs. Even
with this slightly fragmented outlook, we still expect significant growth for the sector. That said, we think the impact of low base effects is
beginning to wear off and we expect to see lower growth rates in the coming years.
Tab le: Islamic Bonds and Loans (2013) 21
Chapter 3: 10-Year Forecast 25
The Kuwaiti Economy to 2023 25
High Wealth, Yet Challenges To Growth 25
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.
Tab le: Long -Term Macroeconomic Forecasts 25
Chapter 4: Business Environment 27
SWOT Analysis 27
BMI Business Environment Risk Ratings 27
Business Environment Outlook 28
Institutions 28
TABLE: BMI BUSINESS and OPERATION RISK RATINGS 28
Infrastructure 29
TABLE: BMI LEGAL FRAMEWORK RATING 29
TABLE: LABOUR FORCE QUALITY 30
Market Orientation 31
TABLE: MENA - ANNUAL FDI INFLOWS 31
TABLE: TRADE and INVESTMENT RATINGS 32
Operational Risk 33
TABLE: Top Export Destinations 33
Chapter 5: Key Sectors 35
Defence 35
Table: Defence Expenditure, 2011-2018 36
Table: Trade Overview, 2009-2018 40
Tab le: Maritime Freight , 2011-2018 40
Table: Air Freight, 2009-2018 40
Tab le: Main Import Partners , 2004-2012 41
Table: Key Trade Indicators, 2011-2018 42
Other Key Sectors 43
Tab le: Oil and Gas Sector Key Indicators 43
Tab le: Pharma Sector Key Indicators 43
Tab le: Telecoms Sector Key Indicators 44
Table: Infrastructure Sector Key Indicators 44
Chapter 6: BMI Global Assumptions 45
Global Outlook 45
Chinese Economy Under Pressure 45
Tab le: Globa l Assumptions 45
Table: Developed States, Real GDP GrowtH, % 46
Tab le: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 46
Tab le: Emerging Markets , Rea l GDP Growth , % 47

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