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Kuwait Business Forecast Report Q4 2014

  • July 2014
  • -
  • Business Monitor International
  • -
  • 42 pages

Core Views
We expect the Kuwaiti economy to perform relatively well over 2014 and 2015, and retain our forecast for real GDP growth of 2.9% and 2.7% respectively, 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 3.8% and 4.0% for 2014 and 2015 respectively, up from 3.3% in 2013. 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 Q4 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
Foreign Policy. 8
Minimal Risks From ISIS Advance, For Now..8
The rapid gains by the Islamic State of Iraq and the Levant (ISIS) across Iraq and Syria pose a significant threat to stability in
neighbouring countries. However, despite government proclamations, we believe Kuwait faces less significant risks given the country's
military capabilities and buffer of southern Iraq. That said, returning Kuwaiti fighters from ISIS's ranks present a longer-term risk. 8
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
Consumption And Investment To Drive Growth14
Kuwait's economy will perform relatively well over H214 and 2015, and we retain our forecast for real GDP growth of 2.9% and 2.7
%in 2014 and 2015 respectively, from an estimated 3.0% in 2013. Growth will increasingly be driven by investment and consumption;
however, economic activity in Kuwait will lag the rest of the Gulf States, and risks are weighted to the downside due to the country's
ever-volatile political situation.
Table : Economic Acti vit y....14
Fiscal Policy . 16
Subsidy Reform For Nationals Highly Unlikely.16
Kuwait's generous subsidy system is not set for substantial reform despite increasing calls for a review of the scheme. Kuwait's
political structure and the need for parliamentary approval are likely to prevent the passage of any subsidy reforms affecting nationals.
By contrast, we expect the provision of subsidies to Kuwait's vast expatriate population to be gradually reduced over the coming
year.
Table: Fiscal Policy....16
Banking Sector . 18
Brightening Outlook18
We hold a moderately bullish outlook for Kuwaiti commercial banks over 2014 due to improvements in the operating environment and a
slight pick-up in government investment spending and construction activity. We forecast credit growth of 7.5% by the end of 2014, from
7.3% in 2013 and just 3.1% in 2012. As ever, the country's political situation remains a key downside risk.
Monetary Policy 19
Housing To Push Inflation Higher...19
Kuwait's consumer price inflation will average 3.4% 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. However, it is the housing market which
will have the largest impact as a tight supply picture sees price gains in the real estate sector - a trend seen across the GCC.
Table : Monetar y Polic y.19
Islamic Finance . 20
Growth To Slow, But New Markets To Surface..20
Islamic finance is set for continued growth as several countries vie to become global centres, although expansion rates have peaked. At
present, we expect Malaysia to remain the global leader in Islamic banking, although there will be concerted competition from Dubai. In
addition, there is huge growth potential in India, Nigeria and Thailand.
Table : GCC Islamic Bonds ....20
Chapter 3: 10-Year Forecast 23
The Kuwaiti Economy To 2023.. 23
High Wealth, Yet Challenges To Growth..23
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 Macr oec onomic Forecasts ..23
Chapter 4: Business Environment 25
SWOT Analysis.. 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook 26
Institutions.... 26
TABLE: BMI BUSINESS and OPERATION RISK RATINGS...26
Infrastructure 27
TABLE: BMI LEGAL FRAMEWORK RATING...27
TABLE: LABOUR FORCE QUALITY.28
Market Orientation.. 29
TABLE: MENA - ANNUAL FDI INFLOWS...29
TABLE: TRADE and INVESTMENT RATINGS....30
Operational Risk 31
TABLE: Top Export Destinations31
Chapter 5: Key Sectors.. 33
Pharmaceuticals and Healthcare.. 33
Table : Pharmaceutical Sales Indicat ors , 2010-2018 ...34
Table: PRIVATE Healthcare Indicators, 2010-2018 ..35
Table : GOV ERNMENT Healthcare Indicat ors , 2010-2018 ...35
Table: Healthcare Expenditure Indicators, 2010-2018 ...35
Telecommunications... 37
Table : Telec oms Sect or - Mobile - Hist orical Data and Forecasts . 37
Table : Telec oms Sect or - Wireline - Hist orical Data and Forecasts .. 39
Chapter 6: BMI Global Assumptions. 41
Global Outlook... 41
Global Recovery Still On Track..41
Table : Global Assumpti ons ....41
Table: Developed States, Real GDP GrowtH, %.42
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 42
Table : Emerging Markets , Real GDP Growth , %43

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