More than just oil: Kuwait's private sector expects 5 percent growth

More than just oil: Kuwait's private sector expects 5 percent growth
2.5 5

Published December 27th, 2015 - 08:35 GMT via SyndiGate.info

Rate Article:

 
PRINT Send Mail
comment (0)
The economic activity is expected to improve over the next two years (Image: File/Photo)
The economic activity is expected to improve over the next two years (Image: File/Photo)
Follow >
Click here to add National Bank of Kuwait as an alert
National Bank of Kuwait

The non-oil private sector growth in Kuwait this year remained resilient despite pressure from lower oil prices, said a report.

The growth is set to pick up pace and is poised to hit 4 to 5 per cent in 2016 and 2017, according to a report by National Bank of Kuwait (NBK).

The economic activity is expected to improve over the next two years, boosted by an increase in public investment and steady growth in consumption, stated the country's top lender in its review.

"This is happening despite the large decline in oil prices seen since the middle of 2014, and which has put some pressure on the government’s fiscal position," it stated.

The NBK said growth was accelerating further towards 4.5-5 per cent in 2016 and 2017. And, though the most recent available official data on nonoil GDP growth shows slower growth of 2.1 per cent in 2014, it will be revised upwards towards 3-3.5 per cent.

"In our view, the pace of growth started to show some pick up back in 2014, supported by accelerating project implementation and a robust consumer sector. This momentum is expected to have carried over into 2015," said the report.

The country's top lender pointed out that the government’s capital spending plans remain on track, with recent pickup in execution expected to be sustained.

The somewhat robust outlook for the nonoil sector is being driven in large part by the outlook for government capital spending, said the report.

Plans involve spending around KD34 billion ($112 billion) between 2015 and 2020. Since late 2013, there has been a marked improvement in the implementation of the government development plan.

The plan calls for both government and private investment in a host of large infrastructure projects (PPPs in some cases). Following some delay in prior years, we have seen a pickup in the pace of implementation. More than KD7.5 billion ($25 billion) in projects were awarded in 2014 and another KD12 billion ($39.4 billion) during 2015.

"While the government has already taken some measures to rationalize current spending, some of which are incorporated in the current budget, the impact on the domestic economy is expected to be limited. We have revised our growth outlook slightly downwards, though we still see growth improving," the report added.

According to NBK, the inflation is expected to ease in 2016 and 2017 thanks to a stronger dinar and low global inflation.

Relatively moderate fiscal deficits are expected in the medium term, with large buffers more than adequate, stated the report.

The top Kuwaiti lender said pressure on the country’s fiscal and external positions remains contained and manageable.

"The fiscal deficit should not exceed 6.2 per cent of GDP in FY15/16 and is seen narrowing to under 4 per cent in the following two years. Thanks to large fiscal and external buffers, the government is expected to maintain a relatively supportive fiscal stance despite the decline in oil revenues," it stated.

The sovereign wealth fund is estimated at over 400 per cent of GDP ($550 billion).

However, the NBK had a word of caution for 2016 outlook. "The main downside risk to this outlook is if oil prices remain lower for longer or if they see further declines from current levels. Our baseline view is that brent will gradually improve towards an average of $55 a barrel in 2016 and perhaps $60 in 2017," it stated.

"A weaker oil price scenario would put added pressure on the fiscal and external positions of Kuwait and could result in more significant expenditure cuts and possibly even some reductions or delays in capital spending. Nonetheless, we think this is a risk and not our baseline at this point," the report added.

 

Copyright 2015 Al Hilal Publishing and Marketing Group

Add a new comment

 avatar