Kuwait’s economy to remain in recession

• Kuwait is forecast to have the highest inflation rate in the GCC region.

• Economic growth in the rest of the GCC is expected to be weaker than previously forecast.

• The UAE is expected to see the strongest growth in the region this year, followed by Qatar. Saudi Arabia’s economic growth is expected to be among the slowest in the GCC this year.

Kuwait’s economy is facing a challenging year, with projections indicating it will remain in recession. Contributing factors to this economic downturn include OPEC+ production cuts and a weakened global economic environment.

A Reuters poll has found that Kuwait’s economy is expected to remain in recession this year, with the country experiencing the highest inflation rate in the Gulf region.

Economic growth in the country is expected to be weaker than previously forecast due to OPEC+ production cuts.

The production cuts have dealt a substantial blow to the economy, further compounded by a sluggish global demand for Kuwaiti goods and services.

Kuwait’s heavy reliance on oil exports exacerbates the situation, according to reports by Al-Qabas newspaper.

According to James Swanston, MENA Economist at Capital Economics, “Following the OPEC+ decision to keep oil production low for longer, economic growth in the remaining Gulf states – Kuwait, Oman and Bahrain – will be weaker this year than we had previously expected.”

Adding to Kuwait’s economic woes is the anticipated highest inflation rate within the GCC region, projected at 3.2%.

Several factors contribute to this inflationary pressure, including the surge in global food and energy prices, the depreciation of the Kuwaiti dinar against the US dollar, and the government’s expansionary fiscal policy.

“Inflationary movements in the Gulf are very subdued even as global inflationary pressures peak,” said Francesco Arangelli, Senior Emerging Markets Economist at J.P. Morgan.

Regional economic outlook

The GCC region as a whole is experiencing a weaker economic performance than initially forecast.

While some countries exhibit signs of resilience, the overall growth is tempered by challenges such as the OPEC+ production cuts, and the global economic slowdown.

The UAE emerges as a standout performer within the region, with projected growth of 3.7%. This robust performance is attributed to the country’s emphasis on economic diversification and the successful hosting of Expo 2020 Dubai.

Qatar follows closely behind, anticipating a growth rate of 2.2%. The expansion of gas production and the successful hosting of the FIFA World Cup 2022 are key drivers of Qatar’s economic growth.

In contrast, Saudi Arabia, the region’s economic powerhouse, is expected to experience slower growth at 1.8%.

The country’s reliance on oil exports, coupled with the impact of OPEC+ production cuts, has contributed to this moderated growth.

Oman and Bahrain are projected to achieve growth rates of 1.6% and 2.6% respectively.

OPEC+ decision and global impact

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, initially planned to increase oil production in 2023.

However, the alliance decided to extend production cuts until 2025. This decision has had a significant impact on global oil prices, which have struggled to maintain the $80 per barrel mark.

Consequently, the International Monetary Fund has lowered its growth forecast for Saudi Arabia, the region’s largest economy.