05 April 2011
KUWAIT: After a 4.5% decrease during 2009, Kuwait's real GDP is expected to grow by 2.3% during 2010 and 4.4% during 2011, based on the latest report from the International Monetary Fund. According to the new Kuwait Development Plan, real GDP is expected to grow at an annual rate of 5.1% from 2010/11 to 2013/14. Although the figures of the development plan seem quite optimistic, we believe the implementation of all intended projects of the plan, along with increasing global oil demand, will create sustainable growth in the medium-term.
Kuwait Development Plan
The Parliament approved the government-proposed economic plan in February 2010 which is estimated to cost KD37bn. The Kuwait Development Plan aims to enhance the private sector while diversify the economy, which has been dominated by the hydrocarbon sector. The projects of the plan will be developed by the government through capital expenditures, or by the private sector, mainly through a BOT scheme. The private sector will also involved in the development plan through the privatization of government entities, such as Kuwait Airways and several electricity and water plants. Under the new development plan, the real GDP of the private sector is expected to grow at an average rate of 8.8%, while non-oil GDP is expected to witness growth at an average rate of 7.5% during the same period.
At the end of January 2011, the Finance Minister announced that the Council of Ministers has approved the fiscal budget for 2011/12. With a projected $60/bbl oil price, Kuwait's budget deficit will reach KD4.5bn ($16bn) due to a 10% increase in spending, which is equal to KD17.9bn. However, revenues are budgeted to increase by 38% y-o-y to reach KD13.4bn. The Finance Minister also mentioned that there will be increased spending on investment expenditure and decreased spending on current expenditures in 2011/12. The proposed budget needs to be approved by the Parliament before the beginning of the new fiscal year, April 1, 2011.
Stock market
Kuwait stock market gained 20.0% amidst decline in trading activity. The Global General Index grew 20.0% y-o-y to reach 223.5 points during 2010. The best performing sector in the Kuwaiti market was the banking sector, as the Global Banking Index jumped 39.2% y-o-y to reach 362 points. Trading activity declined during 2010 as trading volume and trading value shrank 30% and 44%, respectively. The market capitalization of the entire market equaled $124.7bn as it grew by 20.1% y-o-y.
Kuwait Economy
Kuwait economy has significantly slowed down since 4Q-2008 after witnessing several years of steady growth. Kuwait's nominal GDP in 2009 experienced a 21% decrease to reach KD31.5bn, compared to a 23% increase during the previous year. The non-oil GDP was not heavily affected as it increased by almost 6% in 2009, while growing by 5% during the previous year. On the other hand, the oil GDP decreased by 41% in 2009 after witnessing a 39% increase in 2008. That significant decline in hydrocarbon figures was directly related to the diminishing oil prices that started in 2008 and continued in 2009. The global financial crisis triggered a decline in oil, real estate, and equity prices which caused the economic slowdown in 2009.
GDP Trend
In real terms, the GDP recorded a decline of 4.5% in 2009, which was the worst in the GCC, to reach KD18.9bn, compared to a 5.6% growth in 2008. The significant decline in oil prices and in the oil production rate due to OPEC cuts (2.26mn bpd in 2009 compared to 2.55mn bpd in 2008) was the reason for the drop in 2009 real GDP compared to previous years. As a result, per capita GDP witnessed a 22% decline in 2009 to reach $33,718, compared to $43,190 during the previous year. Despite the decline in 2009, Kuwait's per capita GDP in terms of purchasing power parity is second highest among GCC countries after Qatar.
The contribution of non-oil sectors to the GDP increased 4% to KD18.7bn in 2009 after a 5% growth during the previous year. Real non-oil GDP was estimated to have remained stagnant, which reflected a slowdown in the construction and financial sectors. According to the International Monetary Fund (IMF), real oil GDP declined by more than 11% for 2009. Due to lower oil prices and production rates, the non-oil percentage contribution to GDP was 55% in 2009 as opposed to 41% in 2008.
Nominal GDP during the period 2005-2008 grew at a CAGR of 19%. The healthy growth during that period was mainly backed by rising oil prices. Similar to most GCC countries, the hydrocarbon sector is a main contributor to Kuwait's GDP as it represented an average of 53% of nominal GDP during the same period. However, the hydrocarbon sector contributed 45% of Kuwait's GDP in 2009 due to the decline in oil prices.
According to IMF projections, real non-oil GDP is expected to grow by 2.6% in 2010 and by 4.5% in 2011 due to increased government spending on the recently approved development plan. Real oil GDP is expected to grow by 1.9% in 2010 and by 4.3% in 2011 due to increase in oil production. Furthermore, credit agency Moody's stated in a recent report that the government's debt-to-GDP ratio is expected to decrease to 6.6% in 2010 and down to 6.1% in 2011. Based on the Kuwait Development Plan (KDP), GDP is expected to grow at an annual rate of 5.1% from 2010/11 to 2013/14. Overall, the economy is projected to gradually grow in the next few years as the global recovery increases oil demand; the implementation of the KDP will also boost the economy as the financial and construction sectors grow.
Oil prices in the beginning of 2009 floated around $40-50 and then gradually started increasing to reach $80/barrel by the end of 2009 (average was $61.76/barrel for ?09 vs $93.78 in 2008). Due to the significant decline in oil prices, OPEC ordered production cuts at the end of 2008 to limit the supply and raise prices. As we have mentioned above, oil and gas contribution to GDP was 53% on average from 2005-08 while it dropped to 45% during 2009. Crude oil and gas contribution to GDP grew at a CAGR of 24.
5% from 2005-08, while 2009 faced a decrease of 41% to reach KD14.2bn. During 2010, oil prices increased to reach an average of $79.5/barrel, which is expected to increase the oil's contribution to GDP in 2010.
As seen in the economic and social development plan of Kuwait, diversifying the economy away from oil is the long-term development strategy of the country. The new development plan aims to privatize many public entities to improve competitiveness in all sectors. Based on the development plan, the real non-oil GDP will grow by an annual rate of 7.5% from 2010/11 to 2013/14.
KUWAIT: After a 4.5% decrease during 2009, Kuwait's real GDP is expected to grow by 2.3% during 2010 and 4.4% during 2011, based on the latest report from the International Monetary Fund. According to the new Kuwait Development Plan, real GDP is expected to grow at an annual rate of 5.1% from 2010/11 to 2013/14. Although the figures of the development plan seem quite optimistic, we believe the implementation of all intended projects of the plan, along with increasing global oil demand, will create sustainable growth in the medium-term.
Kuwait Development Plan
The Parliament approved the government-proposed economic plan in February 2010 which is estimated to cost KD37bn. The Kuwait Development Plan aims to enhance the private sector while diversify the economy, which has been dominated by the hydrocarbon sector. The projects of the plan will be developed by the government through capital expenditures, or by the private sector, mainly through a BOT scheme. The private sector will also involved in the development plan through the privatization of government entities, such as Kuwait Airways and several electricity and water plants. Under the new development plan, the real GDP of the private sector is expected to grow at an average rate of 8.8%, while non-oil GDP is expected to witness growth at an average rate of 7.5% during the same period.
At the end of January 2011, the Finance Minister announced that the Council of Ministers has approved the fiscal budget for 2011/12. With a projected $60/bbl oil price, Kuwait's budget deficit will reach KD4.5bn ($16bn) due to a 10% increase in spending, which is equal to KD17.9bn. However, revenues are budgeted to increase by 38% y-o-y to reach KD13.4bn. The Finance Minister also mentioned that there will be increased spending on investment expenditure and decreased spending on current expenditures in 2011/12. The proposed budget needs to be approved by the Parliament before the beginning of the new fiscal year, April 1, 2011.
Stock market
Kuwait stock market gained 20.0% amidst decline in trading activity. The Global General Index grew 20.0% y-o-y to reach 223.5 points during 2010. The best performing sector in the Kuwaiti market was the banking sector, as the Global Banking Index jumped 39.2% y-o-y to reach 362 points. Trading activity declined during 2010 as trading volume and trading value shrank 30% and 44%, respectively. The market capitalization of the entire market equaled $124.7bn as it grew by 20.1% y-o-y.
Kuwait Economy
Kuwait economy has significantly slowed down since 4Q-2008 after witnessing several years of steady growth. Kuwait's nominal GDP in 2009 experienced a 21% decrease to reach KD31.5bn, compared to a 23% increase during the previous year. The non-oil GDP was not heavily affected as it increased by almost 6% in 2009, while growing by 5% during the previous year. On the other hand, the oil GDP decreased by 41% in 2009 after witnessing a 39% increase in 2008. That significant decline in hydrocarbon figures was directly related to the diminishing oil prices that started in 2008 and continued in 2009. The global financial crisis triggered a decline in oil, real estate, and equity prices which caused the economic slowdown in 2009.
GDP Trend
In real terms, the GDP recorded a decline of 4.5% in 2009, which was the worst in the GCC, to reach KD18.9bn, compared to a 5.6% growth in 2008. The significant decline in oil prices and in the oil production rate due to OPEC cuts (2.26mn bpd in 2009 compared to 2.55mn bpd in 2008) was the reason for the drop in 2009 real GDP compared to previous years. As a result, per capita GDP witnessed a 22% decline in 2009 to reach $33,718, compared to $43,190 during the previous year. Despite the decline in 2009, Kuwait's per capita GDP in terms of purchasing power parity is second highest among GCC countries after Qatar.
The contribution of non-oil sectors to the GDP increased 4% to KD18.7bn in 2009 after a 5% growth during the previous year. Real non-oil GDP was estimated to have remained stagnant, which reflected a slowdown in the construction and financial sectors. According to the International Monetary Fund (IMF), real oil GDP declined by more than 11% for 2009. Due to lower oil prices and production rates, the non-oil percentage contribution to GDP was 55% in 2009 as opposed to 41% in 2008.
Nominal GDP during the period 2005-2008 grew at a CAGR of 19%. The healthy growth during that period was mainly backed by rising oil prices. Similar to most GCC countries, the hydrocarbon sector is a main contributor to Kuwait's GDP as it represented an average of 53% of nominal GDP during the same period. However, the hydrocarbon sector contributed 45% of Kuwait's GDP in 2009 due to the decline in oil prices.
According to IMF projections, real non-oil GDP is expected to grow by 2.6% in 2010 and by 4.5% in 2011 due to increased government spending on the recently approved development plan. Real oil GDP is expected to grow by 1.9% in 2010 and by 4.3% in 2011 due to increase in oil production. Furthermore, credit agency Moody's stated in a recent report that the government's debt-to-GDP ratio is expected to decrease to 6.6% in 2010 and down to 6.1% in 2011. Based on the Kuwait Development Plan (KDP), GDP is expected to grow at an annual rate of 5.1% from 2010/11 to 2013/14. Overall, the economy is projected to gradually grow in the next few years as the global recovery increases oil demand; the implementation of the KDP will also boost the economy as the financial and construction sectors grow.
Oil prices in the beginning of 2009 floated around $40-50 and then gradually started increasing to reach $80/barrel by the end of 2009 (average was $61.76/barrel for ?09 vs $93.78 in 2008). Due to the significant decline in oil prices, OPEC ordered production cuts at the end of 2008 to limit the supply and raise prices. As we have mentioned above, oil and gas contribution to GDP was 53% on average from 2005-08 while it dropped to 45% during 2009. Crude oil and gas contribution to GDP grew at a CAGR of 24.
5% from 2005-08, while 2009 faced a decrease of 41% to reach KD14.2bn. During 2010, oil prices increased to reach an average of $79.5/barrel, which is expected to increase the oil's contribution to GDP in 2010.
As seen in the economic and social development plan of Kuwait, diversifying the economy away from oil is the long-term development strategy of the country. The new development plan aims to privatize many public entities to improve competitiveness in all sectors. Based on the development plan, the real non-oil GDP will grow by an annual rate of 7.5% from 2010/11 to 2013/14.
© Kuwait Times 2011
