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Kuwait Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views

We expect the Kuwaiti economy to see modest growth over 2016 and2017, forecasting real GDP growth of 1.2% and 1.9% respectively.After a long period of stagnation, the Kuwaiti investment outlook appearsto be improving, while the prospects for consumption remainbright. However, we again highlight Kuwait's ever-volatile politicalsituation as the key downside risk to economic activity.Kuwait has seen a flurry of populist legislation recently, includingseveral measures specifically targeting expatriate workers.

This runsthe risk of increasing uncertainty within the private sector, as well ascementing perceptions of the country as a hub of policy instability.We expect tensions to remain between the government and thelegislative branch, even with the election of a renewed 'loyalist'parliament.We forecast average consumer price inflation for Kuwait of 4.0% and4.1% for 2016 and 2017 respectively, up from 3.3% in 2015. Whilewe expect a slight fall in Kuwaiti food inflation over the near termon the back of lower global prices, a tight supply picture in the realestate market will fuel housing inflation over the coming quarters,in a trend seen across the Gulf Cooperation Council.

Table Of Contents

Kuwait Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks 5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
No Escaping A Slowdown8
Lower oil prices will have a detrimental effect on Kuwait's economy, weighing slightly on the government's expenditure plans but more
notably on business confidence and consumer spending
TABLE: KEY ECONOMIC INDICATORS 8
GDP By Expenditure Outlook 9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
New Era Ahead As Huge Surpluses End11
Kuwait will record its first fiscal deficit since 1999 in 2016, as oil prices remain weak and spending plans pick up This deficit will be
short-lived, as small surpluses are recorded from 2017 onwards given cutbacks in expenditure; however, the huge surpluses of much of
the 2000s will become a distant memory
Structural Fiscal Position 12
Monetary Policy 13
Inflation Nearing Its Peak13
Inflation in Kuwait will head slightly higher over the coming quarters, pushed up by rising housing costs Price rises will be capped as we
expect the discount rate to rise from 225% currently to 300% by year end, in line with the US Fed's move
Monetary Policy Framework 13
Banking Sector Update 14
Development Plans To Bolster Lending Activity14
Growth in Kuwait's commercial banking sector will slow, given the decline in oil prices and thus current expenditure The impact of this
will be slightly mitigated by mild improvements in the operating environment and a pick-up in government spending and construction
activity
Chapter 2: 10-Year Forecast 17
The Kuwaiti Economy To 2025 17
High Wealth, Yet Challenges Remain17
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2025,
keeping the government in surplus
TABLE: LONG-TERM MACROECONOMIC FORECASTS 17
Chapter 3: Political Outlook 19
SWOT Analysis 19
BMI Political Risk Index 19
Domestic Politics 20
Little Impact From Break In Relations With Iran20
Kuwait's decision to break diplomatic ties with Iran represents only a slight deterioration in the country's political risk profile and we see
little to no economic impact Generally, Kuwait faces few external risks, especially given improving relations with Iraq
TABLE: POLITICAL OVERVIEW 20
Long-Term Political Outlook 21
Democracy: No Turning Back21
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
Chapter 4: Operational Risk 25
SWOT Analysis 25
Operational Risk Index 25
Operational Risk 26
TABLE: OPERATIONAL RISK 26
Trade Procedures And Governance 27
TABLE: MIDDLE EAST AND NORTH AFRICA - TRADE PROCEDURES AND GOVERNANCE RISK 27
TABLE: REQUIRED TRADE DOCUMENTS 28
TABLE: TRADE PROCEDURES 28
Vulnerability To Crime 29
Chapter 5: BMI Global Macro Outlook 31
Global Macro Outlook 31
Unfinished Business In 201631
TABLE: GLOBAL ASSUMPTIONS31
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 32
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 32
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %33
TABLE: KUWAIT - MACROECONOMIC DATA and FORECASTS 35

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