2012-11-14 23:38:57 - Kuwait Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com
We retain a broadly sanguine outlook on the Kuwaiti economy´s prospects in 2012 and 2013. Elevated global hydrocarbon prices will allow the government to keep fiscal spending high, driving domestic consumption, while oil production looks set to remain near capacity in the months ahead. While our outlook on fixed investment is less positive, we nevertheless forecast real GDP growth of 4.5% and 3.7% in 2012 and 2013 respectively, down only modestly on estimated growth of 5.7% last year. Political instability is likely to persist throughout the remainder of the year, with no sign of a cooling of tensions between the government and opposition members of parliament. As a result, legislative gridlock will continue to hold up the implementation of the
government´s four-year economic development plan, weighing on growth in the short and long term.
Major Forecast Changes
Inflation in Kuwait is likely to remain relatively subdued in the near term, and easing global commodity prices have led us to revise down our average inflation forecast for 2012, from 5.0% to 4.0%. That said, given rising wages and robust economic growth, price stability is increasingly reliant on government subsidies, which raises significant fiscal risks for the years ahead.
Key Risks To Outlook
As ever, given the economy´s heavy dependence on oil, any sustained downturn in global energy prices would prove disastrous, and the recent leg down in global oil prices will have a direct impact on the country´s fiscal and current account balances. That said, Kuwait has the financial wherewithal 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. Any improvement on this front would pose upside risks to our growth forecasts, as well as downside risks to our budget surplus projections.
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