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We remain broadly confident about Kuwait’s growth prospects in 2012 despite the increasingly foreboding external environment. We expect that heavy government spending will continue driving a robust economic expansion, as public sector wage hikes feed through to consumer spending, and largescale infrastructure projects come out of the pipeline. Moreover, our expectation that oil prices will remain relatively elevated over the coming quarters is likely to encourage the government to continue ramping up production throughout the year, thus boosting export growth. This planned massive expansion in government expenditure is intended to pre-empt the emergence of social tensions – a reflection of the Arab Spring in the greater region. We forecast real GDP growth of 5.4% in 2012, down only moderately on our estimate of 6.1% growth in 2011.

We expect household expenditure to grow robustly over the coming year, boosted principally by rapidly rising wages in both the public and the private sector. In mid-2011, the government announced a 30% hike in public expenditure, with the majority of the increase allocated to wage increases and subsidy payments. Furthermore, the country experienced a wave of industrial unrest in late 2011, with workers across the public sector striking for higher wages and improved working conditions. In general, the government was quick to give in to such demands, and as a result consumer spending is likely to continue rising in the near term as these wage hikes filter through.Headline Industry Data (local currency):

- 2012 food consumption growth = 3.48%; forecast to 2016 = 19.47%
- 2012 per capita food consumption growth = 0.87%; forecast to 2016 = 6.9%
- 2012 bottled water volume sales growth = 6.35%; forecast to 2016 = 33.0%
- 2012 hypermarket sales growth = 9.97%; forecast to 2016 = 53.65%Key Industry Trends:

Ice Cream Sector Attracting Investments: In late 2011, two US firms announced major investments in Kuwait’s ice cream sector. First, Baskin-Robbins, a subsidiary of Dunkin’ Brands, announced that it would pursue further expansion throughout the Middle East. Baskin-Robbins has more than 4,000 international outlets, with a massive presence in developing markets, and plans to open 25 new stores in the Middle East by 2013. Frozen dessert chain Tasti D-lite announced that it will be expanding in the Middle East via a franchising agreement. Al-Himmah International Limited reached an agreement to expand the chain in six countries in the region – Bahrain, Kuwait, Qatar, Saudi Arabia, Lebanon and Jordan, with the first stores expected to be opened in Saudi Arabia in March and plans to open 30 stores over the next five years.Americana Reveals Latest Investment: In January 2012, Americana Group announced a development agreement with US high-end burger chain The Counter to open and operate 33 new locations across the Middle East in the UAE, Kuwait, Qatar, Oman, Jordan, Lebanon, Egypt, Libya, Tunisia and Algeria. The agreement spans eight years and will make The Counter the leading premium burger restaurant in the region. The Counter specializes in custom-made burgers using a wide variety of high-quality ingredients. In addition to the aforementioned expansion plans, two restaurants are planned for the Etoile Center in Jeddah, Saudi Arabia, and in Saar, Bahrain.Key Risks To Outlook:

Political Volatility: Given the extent to which our forecast is dependent on government spending, the primary risk to our sanguine outlook comes from the highly uncertain political environment. In the event that February’s parliamentary elections fail to produce a coherent new government, much of the public spending we expect could fail to materialise, posing significant downside risks to our forecast. That said, we also point out that massive budget surpluses leave plenty of scope for a higher-than-expected ramping up of public spending, and in this scenario some of our forecasts could prove overly pessimistic.