A report issued by the National Bank of Kuwait stated that preliminary estimates issued by the Central Statistical Administration indicate, acceleration in the pace of non-oil growth in Kuwait, during the second quarter of 2024 compared to the first quarter, supported by the strong performance of the manufacturing sector.
In contrast, the decline in oil GDP continued, affected by the Kuwaiti production cuts approved by OPEC. This negatively affected the economic growth, which recorded 1.5% year-on-year in the second quarter, achieving an improvement compared to the first quarter reading of, 3.7%.
The National Bank indicated that the expectations for 2025 remain positive. As reports are expected that the non-oil sector will continue its steady growth, which is in addition to increasing oil production against the backdrop of OPEC, and its allies canceling their voluntary cuts by year end.
The NBK report added that the pace of non-oil GDP growth rose to 4.2% year-on-year in the second quarter of 2024, compared to a growth of 2.7% in the previous quarter, after the previous estimate of 4.7% was reduced.
Although these data are still preliminary and subject to review, sectoral data indicate that this expansion was driven by strong growth in the other services, including real estate sector, which grew by 6.2% year-on-year. This is in addition to the manufacturing sector that grew by 5.7%, driven by the increasing contribution of crude oil refining operations, which witnessed increased production rates at the Al-Zour Refinery.
The adjustment of the ‘taxes minus subsidies’ item to a less negative rate also contributed to these results. In contrast, other sectors witnessed a decline during the second quarter. Most notable was the public administration and defense sector, which is one of the largest sectors of the non-oil economy. It contracted by 2.4% on year-on-year basis, in addition to the communications sector by 0.7%, and the hotels and restaurants sector by 4.2%.
Significantly, Kuwait’s non-oil economy has finally started to recover after two years of contraction, including a 2.9% decline in 2023, with growth averaging 3.5% in the first half of 2024, NBK said. While annual growth is forecast at 2.3%, current trends suggest a moderate acceleration in growth, next year.
These include the end of the recent decline in consumer spending growth, along with notable gains in bank credit, real estate, and development project awards. The start of a monetary easing cycle, following the Central Bank of Kuwait’s 25 basis point (bps) discount rate cut in September, is expected to support economic growth.
According to these data, non-oil GDP is expected to grow by 2.6% in 2025. In the long term, and for Kuwait to achieve higher growth rates than the pre-pandemic annual average of 3.3% (2011-2019), activating the upcoming government economic reform programs and significantly raising local investment rates is expected.
Oil Sector
The National Bank of Kuwait report said that the Oil GDP remained in a state of contraction on an annual basis, for the fifth consecutive quarter in the second quarter of 2024. As it was affected by the oil production cuts, approved by OPEC especially the additional voluntary cuts agreed by Kuwait in May 2023.
The contraction rate was 6.8% y/y in Q2, a slight improvement from the 9.8% rate recorded in Q1. In H1 2024, oil output fell by 8.3% y/y, with Kuwait’s crude oil production remaining at 2.413 million barrels per day.
This is in accordance with its OPEC+ quota, while oil production is unlikely to increase before January, as the group agreed in September and November, to extend voluntary cuts in light of weak global demand.
Starting next January, according to the current OPEC schedule, Kuwaiti crude oil production will increase by 11,000 bpd per month, reaching 2.548 million bpd by the end of 2025. However, oil output growth will turn positive in Q1. For 2025, it is expected that the oil output to increase by 3.4%, assuming that the voluntary OPEC+ cuts are completely removed.
Overall Growth in 2025
To summarize, although the GDP contracted at a slower pace on a year-on-year basis in Q2, compared to the previous quarter. This is the sixth consecutive contraction, and is largely linked to the performance of the oil sector.
However, the economy is expected to return to growth in 2025. As the recovery in the non-oil economy gains momentum and OPEC supply cuts begin to be unwound.
Whereas, the downside risks to the growth outlook center on lower-than-expected oil prices, which could reflect weaker global oil demand fundamentals and result in lower oil revenues.
Thereby potentially prompting the government to adopt a more cautious fiscal stance, while growth prospects could outperform expectations if oil prices rise at a higher-than-expected rate and economic reforms and investment begin at a faster pace, boosting confidence.
