Kuwait’s GDP growth is likely to reach a healthy-looking 5.4 per cent in 2012, but growth in the non-oil sector, at 4 per cent, will remain below the regional average, according to a new report.
The country’s consumer price inflation is expected to average 3-4 per cent this year and next, little changed from recent levels, said the National Bank of Kuwait (NBK) in its latest forecast.
Previously high food price inflation has decelerated as the lagged effect of falls in global food prices has taken hold. Although consumer spending will remain strong, soft monetary conditions and a strong US dollar are expected to help keep inflation low, it added.
Two key factors are holding the economy back: the slow pace of execution of the government’s four-year development program (2010/11-2013/14), and lingering effects from the financial crisis, which have undermined business confidence, said the report.
In addition, structural reforms are needed in labor and product markets to improve the economy’s underlying growth potential, it added.
Despite the recent fall in oil prices, we assume that output remains close to current levels throughout the year and next as Opec seeks to rebuild global crude inventories and support global growth.
‘This translates into a strong 8 per cent increase in real oil GDP this year but no growth in 2013. High output levels increase the importance of implementing the sector’s expansion plans, which have been held up by technical and political factors,’ said the NBK in its forecast.
The consumer sector remains the bright spot of the non-oil economy, supported by high employment levels and large government-inspired salary and benefit increases for nationals, the top Kuwait lender stated.
‘New retail developments have provided an outlet for spending growth. Activity in other sectors remains more subdued, with firms hesitant to take on more debt and lacking a major trigger to invest. One notable exception has been the residential property sector, where land and building sales have surged,’ it added.
According to NBK, the targeted public development plan spending for 2012/13 has been set at KD5.5 billion ( ), up 5 per cent year on year.
Based on estimated spending rates in previous years (58-62 per cent of targeted), this could boost total fixed investment by 0.3 per cent of GDP, though some of this may leak abroad.
The increase in planned spending comes largely in the electricity sector. Proposed public-private projects (PPPs) continue to be delayed by administrative and bureaucratic hurdles, though the first – the Al Zour power station – could start in the third quarter of 2012.
NBK in its forecast said despite a projected dip in oil prices, the budget and external surpluses will continue to be very large. Government spending could leap by as much as 17 per cent in 2012/13 in light of recent increases in public sector pay and social spending, said the banking giant.
Oil revenues, however, could also increase on higher than expected production levels. The net effect is a slight decrease in the budget surplus to 23 per cent of GDP, the report concluded.