Kuwait’s non-oil growth, which accelerated notably in 2013, is expected to maintain its momentum, remaining around 5-6 per cent in the coming two years as government development projects keep their robust pace, a report said.
Other indicators have also reflected the pick-up in economic activity and the accelerating pace of growth, added the latest Economic Update issued by the National Bank of Kuwait (NBK).
Private credit growth has been picking up gradually, reaching 7.7 per cent year-on-year (y/y) in September 2014. If the recent write-off of Family Fund loans by banks is taken into account, adjusted credit growth is estimated to have reached 9 per cent y/y, according to NBK.
Total real GDP growth was more modest, at 1.5 per cent in 2013, as a result of a small decline in oil sector output.
Oil production declined by 0.8 per cent following two years of strong double-digit growth in output triggered by the loss of oil supplies from some Opec producers, including Libya and Iran. We expect oil production levels to decline further in 2014 and 2015. Output will return to modest growth in 2016.
The consumer sector remains a strong driver of economic growth, though it has moderated since 2013. While large pay hikes for Kuwaitis are not expected in the near term, household income growth will remain healthy supported by robust employment growth. The sector will also benefit from expectations of stronger private sector hiring and pay in the coming period, benefiting both Kuwaitis and skilled expatriates.
Risks for Kuwait remain subdued in the near term, with Kuwait’s fiscal position allowing it to navigate the recent decline in oil prices relatively well. The sovereign wealth fund and others are estimated to hold over $500 billion, or 310 per cent of GDP.
In the medium to long term, the challenges are more serious, as government spending growth threatens to reduce the state’s fiscal space. However, the government is already looking at measures to boost non-oil revenues and limit spending growth in the coming years.
Domestic demand growth maintains healthy pace
Growth in domestic demand slowed somewhat in 2013 following strong growth the year before. Domestic demand rose by 5.7 per cent in real terms in 2013, following 9 per cent growth in 2012. Most of the moderation came from slower growth in private consumption. Government current spending growth also slowed but maintained a rapid pace of 10 per cent.
Investment spending picks up
Meanwhile, momentum in investment is rising, both from government and private sources. Total investment spending in Kuwait grew by 6.2 per cent in real terms in 2013 (nominal growth topped 10 per cent).
Implementation of the government’s development plan has been picking up, and momentum is expected to improve further in 2015 and 2016. The government recently presented its second five-year plan to cover the period from FY15/16 through FY19/20. National Assembly approval is expected early in 2015.
The plan targets investment of KD 11.8 billion ($40.3 billion) a year over the five year period. Even a more realistic execution at around 80-85 per cent of the target will have a positive impact on growth. The plan projects non-oil growth of around 10 per cent y/y, though growth is more likely to average around 6-8 per cent instead.
Consumers remain a robust driver of growth
The consumer has been and remains a key driver of growth in Kuwait, even as growth in the sector has moderated somewhat. Household income growth has remained robust, supported by steady hiring. Income growth has averaged around 5-6 per cent. Household borrowing has also maintained a healthy double-digit rate of growth as has consumers’ card spending.
As a result of robust consumer demand, several sectors that depend on consumer spending have done very well. The trade sector grew by 11 per cent in 2013 while the hotels and restaurants sector has expanded by 6 per cent in real terms. Communication was another sector that has maintained a healthy pace thanks to strong demand from consumers, with growth in the sector at 8.5 per cent.
Strong real estate sector
Real estate sales maintained healthy growth in 2014, driven particularly by a strong investment sector. Total real estate sales for the 12 months ending in October 2014 were up by 19 per cent y/y to a monthly average of KD351 million ($1.2 billion).
The investment sector has seen growth in excess of 50 per cent while residential sales have been mostly flat. The commercial sector, which tends to be quite volatile, has seen growth ease in 2014 following a very strong year in 2013, but has maintained robust sales activity.
Copyright 2019 Al Hilal Publishing and Marketing Group