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Non-oil growth in Kuwait to pick up in 2017
January 21, 2017, 5:29 pm
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Held back by new OPEC oil-production quotas, the Gulf Cooperation Council (GCC) states are expected to grow 2 percent overall in terms of real GDP during 2017 and 2018. This is a lower growth rate than that of the world economy, which is projected to grow at around 3 percent during the same period.

However, the economic reforms being implemented by GCC governments are expected to boost non-oil growth in the GCC, which is expected to average 3 percent in 2017-18, led by growth in Qatar, UAE and Kuwait.

In Kuwait, despite the impact of lower oil prices for much of 2016, domestic economic activity remained quite robust. Supported by a strong government-led investment program, non-oil growth is expected to continue on an improving trajectory and maintain growth of 3 to 4.5 percent in 2017–2018.

In its regular economic outlook report, the National Bank of Kuwait (NBK) estimated that non-oil GDP growth, which remained resilient at 3.5 percent in 2016, is expected to inch forward to 4 percent in 2017–2018. Faster pace of execution of capital projects in infrastructure by the government are projected to support non-oil growth improvements in the upcoming period. The government’s mega development plan, which includes significant private investment, targets investments of KD34 billion through 2020.

The government’s project awarding and implementation pace has clearly picked up with projects worth a total of KD23.1 billion being awarded since 2014 up to September 2016. Recent projects awarded include the new airport terminal, at an estimated cost of KD1.8 billion, which could see the current passenger handling capacity being tripled by 2022.

Nonetheless, all this projected non-oil growth could face some headwinds in the form of lower consumer spending, which has long been a robust and reliable source of growth in Kuwait. Consumer confidence which has been dampened throughout 2015 on the back of persistent low oil prices took a dive in 2016 in the face of fuel price hikes in August. Despite being supported by steady growth in employment and salaries, particularly in the public sector, household confidence is expected to remain low in 2017, as planned subsidy cuts in electricity and water tariffs also come into force during the middle of this year.

While fiscal deficit is projected to narrow in 2017 on the back of improving oil prices, much will depend on the government’s commitment to implementing fiscal reforms. If Brent oil prices average around $55 in 2017 and improve to $60 in 2018, Kuwait could see its budget deficit narrow to about 8 to 9 percent of GDP, provided the government sticks with its reform measures.

Overall GDP growth in Kuwait is expected to improve to 2.7 percent in 2017, rising from the fall to 1.8 percent in 2016 on the back of a flat real GDP in the oil sector. The oil sector GDP dip is likely to be impacted by Kuwait’s adherence to a 4.5 percent oil production cut as part of the recent OPEC decision for members to cut production starting from January 2017. Growth in the oil sector is expected to resume to around 1.5 percent in 2018.

Meanwhile, other GCC states could also see some respite in their deficits, though they would continue to struggle with it at least until the end of 2017. GCC deficits, which averaged 10.7 percent of GDP in 2015-16, are expected to shrink to 5.2 percent in 2017-18. Several countries in the six-nation bloc have allayed pressure on domestic liquidity by drawing on their considerable foreign reserves or through debt issuances, both locally and internationally.

In the fourth-quarter of 2016, Saudi Arabia borrowed US$17.5 billion from overseas and Kuwait is preparing to approach international lenders in 2017.

 

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