Kuwait GDP is estimated to grow by 1.1 percent in 2013 as oil prices and production stabilizes, exports remain subdued, and government expenditure slows down, according to Global Investment House's review of the Kuwait economy.
Kuwait's GDP is estimated to have grown 5.1 percent to $ 173.4 billion in 2012, lower than 6.3 percent in 2011.
This growth has been primarily due to the continued increase in oil output, resurgence in the nonoil sector, and improved public and private consumption levels.
However, the political instability halted many developmental projects, thus putting an adverse impact on the economic growth. The oil sector is expected to grow 8.5 percent in 2012, after a record performance (14.2 percent growth) in 2011.
Private consumption is estimated to expand twice as fast (5 percent) versus the last year, boosted by high income levels and strong demand for imported goods. Growth in nonoil sector is projected to increase 5.5 percent in 2012, a major rebound from a mere 0.9 percent growth in 2011.
Despite a move toward diversification, external balances remain firmly linked to oil.
Trade surplus will be driven by increasing oil exports that account for over 90 percent of the total exports.
Trade surplus is projected to rise 27.3 percent to $ 98.4 billion in 2012 on account of a 76.3 percent increase in 2011. Oil exports are expected to increase 18.3 percent to $ 114.4 billion in 2012, while nonoil exports are expected to register 12.3 percent rise to $ 7.3 billion in the same period. Crude oil exports rose as, among the OPEC members, Kuwait was one of the few countries with spare production capacity to deal with the supply shortage arising from Libya's civil unrest in 2011 and Iran's sanctions in 2012.
Trade surplus would remain high in 2013, representing half the size of GDP, despite a moderation in Kuwait's oil production as a result of increasing supply from Libya and Iraq.
Trade surplus is projected to decline 10.3 percent to $ 88.3 billion as oil exports fall 7.9 percent for the year.
Going forward, the pace of economic activity will be largely determined by the speedy implementation of the four-year Development Plan with projects worth more than half the size of the current nominal GDP.
GDP growth is likely to be modest (1.1 percent) in 2013 as oil prices and production stabilizes, exports remain subdued, and government expenditure slows down. Nevertheless, capital formation is expected to rise 6.1 percent in 2013, and continue to increase till 2017. Nonoil sector would continue its current growth trajectory, whereas private consumption is projected to grow 4.9 percent in 2013, accountable to wage growth and continuing demand for imports.
A young population and growing labor force create demand for public sector jobs.
Kuwaiti population, which grew at a CAGR of 3.5 percent in the last decade, is expected to decelerate to 2.2 percent in the current decade. Population under the age of 60 is expected to decline from 96 percent in 2012 to 94 percent by the end of the decade. Meanwhile, the proportion of the population above the age of 60 is expected to increase to 6 percent by 2020, from 4 percent in 2012; this population is expected to grow at a CAGR of 5.5 percent till 2020, more than twice as fast as the growth (2.5 percent) in the previous decade.
Population below the age of 60 is projected to grow at 2 percent per annum till 2020, vis-a-vis 3.6 percent p.a. in the last decade.
With a relatively young population (54 percent of the Kuwaiti population is under the age of 29), Kuwaiti labor force grew at a faster rate than the total labor force and the non-Kuwaiti labor force.
Kuwaiti labor force grew at a CAGR of 1.7 percent in the last 4 years as compared to a decline of 6.1 percent in non-Kuwaiti labor force. This rapid growth has put increasing pressure on public sector employment, as Kuwaitis perceive public sector jobs to be secure and well-paid with fewer working hours. Kuwaitis held 71.0 percent of all public sector jobs in 2011 as compared to just 5 percent in private sector.
Current account will continue to register healthy surplus as robust trade surplus is expected to offset the non-merchandise deficit. Current account surplus is expected to rise 26.9 percent to $ 86.4 billion or 44.2 percent of GDP in 2012, despite a 26 percent increase in services deficit. Current account balance is expected to register surplus in 2013, led by high oil revenue from exports which would offset marginally the increase in imports and a steady non-merchandise deficit. Similar to trade surplus, current account surplus is projected to fall 11.8 percent to 76.2 billion or to 39.5 percent of GDP in 2013.
Portfolio investments abroad would continue to remain volatile due to the government recycling excess oil revenues to invest in foreign equities and bond instruments. Investment in foreign instruments is expected to rise 80 percent to $ 16.2 billion in 2012; however, it is projected to fall by half in 2013, because the government spending is anticipated to increase as the current development plan gets underway. Other investments, which constitute net overseas loans and investments in shorter-term deposit accounts, are expected to more than double to $ 62 billion in 2012 from 2010. Other investments would continue to stay high at $ 60.6 billion in 2013.
Inflation under control following an ease of food prices and housing rent.
Growth in consumer price index (CPI) decelerated in 2012 as inflation rose just 2.9 percent compared to 4.7 percent in 2011. Inflation slowed in all four quarters in 2012, particularly in the second quarter, when there was no change in the CPI.
The slowdown was also pronounced in the third quarter, when CPI rose by a mere 0.7 percent as compared to 1 percent in the same period last year. Moreover, lower inflation signaled by an easing of food prices, rents, and household goods and services component, which represent close to 60 percent of the index.
Inflation for 2013 is expected to register a 3.3 percent growth, averaging 3.8 percent between 2013 and 2017 on limited upward price pressures on food and rents.
Meanwhile, wholesale price index (WPI) also showed signs of weakness, rising 1.5 percent in 2012. Import prices, constituting close to 65 percent of the WPI, registered smaller increase of 1.6 percent in the same period compared to 3.2 percent in 2011. Local prices, which constitute the remaining 35 percent, rose 1.6 percent. A strong US dollar versus the Kuwaiti dinar played a significant role in reducing the cost of imported goods in the second half of 2012.
Interest rates are expected to track the US Fed rate and are likely to remain low.
Monetary policy and liquidity conditions in Kuwait will continue to remain largely accommodative. Given the currency peg between Kuwaiti dinar and the US dollar-dominated basket of currencies, policy interest rates are expected to track the US Fed rate and are likely to remain low. Broad money supply (M3) grew 5.2 percent in 2012, led by double-digit growth (18.3 percent) in demand deposits, which in turn resulted in M1 growth of 16.8 percent and a moderate increase (1.7 percent) in quasi-money. Going forward, money supply is expected to increase by 11.6 percent in 2013 owing to a shift in trend as quasi-money increases by double-digits (14.1 percent), while M1 grows by 4.3 percent.
© Arab News 2013
