We expect the Kuwaiti economy to see modest growth over 2016 and 2017, forecasting real GDP growth of 1.5% and 2.0%, respectively, from 1.4% in 2015. After a long period of stagnation, the Kuwaiti investment outlook appears to be improving, while an uptick in oil output will support growth over the coming quarters. However, we again highlight Kuwait's ever-volatile political situation as the key downside risk to economic activity.
Kuwait has seen a flurry of populist legislation recently, including several measures specifically targeting expatriate workers. This runs the risk of increasing uncertainty within the private sector, as well as cementing perceptions of the country as a hub of policy instability.
We expect tensions to remain between the government and the legislative branch, even with the election of a renewed 'loyalist' parliament. In addition, the passing of a new election law in June will increase the opposition's grievances.
We forecast average consumer price inflation for Kuwait of 3.3% in 2016 - similar to 2015 - before edging up moderately to 3.8% in 2017. While we expect a slight fall in Kuwaiti food inflation over the near term on the back of lower global prices, a tight supply picture in the real estate market will fuel housing inflation over the coming quarters, in a trend seen across the GCC.
As ever, given the economy's heavy dependence on oil, any further downturn in global energy prices would prove disastrous. That said, Kuwait has the financial arsenal to cope with any short-term volatility in oil prices, and therefore the underlying risks in this regard are minimal.
Our forecasts assume that the implementation of the government's development plans will be slow owing to the impact of bureaucratic gridlock. However, the state certainly has the firepower to move forward with its capital spending plans if political compromises can be reached. Furthermore, a renewed loyalist parliament, following legislative elections in July 2013, offers the prospect of an acceleration of long-delayed economic reforms and infrastructure projects. Any improvement on this front would pose upside risks to our growth forecasts, as well as downside risks to our budget surplus projections.
|Nominal GDP, USDbn||163.5||121.6||113.1||121.9|
|Real GDP growth, % y-o-y||-1.2||1.2||1.5||2.0|
|Consumer price inflation, % y-o-y, eop||3.0||3.0||3.5||4.0|
|Exchange rate KWD/USD, eop||0.29||0.30||0.31||0.31|
|Budget balance, % of GDP||27.7||9.6||-9.9||-5.9|
|Current account balance, % of GDP||32.5||9.0||-0.8||3.2|
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