2013-01-01 14:00:52 - Kuwait Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

We retain a broadly sanguine outlook on the Kuwaiti economy´s prospects in 2013 and 2014. 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 much less positive, we nevertheless forecast real GDP growth of 3.7% and 3.3% in 2013 and 2014 respectively.

Political instability is likely to persist throughout 2013, with no sign of a cooling of tensions between the government and the opposition. As a result, political gridlock will continue to hold up the implementation of the government´s four-year economic development plan (about to enter its third year), leaving economic growth trending below

 

 

potential.

Major Forecast Changes

It now seems likely that the opposition will return to a majority in parliament, leading to a continuation of the stalemate that has characterised domestic politics in recent years. We hold a bleak outlook on the prospects of Kuwait´s policymaking process, and have reduced our short-term political risk rating from 69.4 to 67.3.

Kuwait posted a record budget surplus for FY2011/12, reaching 27.7% of GDP. Although current spending is likely to keep increasing at a rapid pace, low levels of capital spending and high revenues from the oil sector should ensure another strong surplus in 2013, which we forecast at 22.5% of GDP, up from our previous forecast of 19.7%.

Key Risks To Outlook

As ever, given the economy´s heavy dependence on oil, any sustained downturn in global energy prices would prove disastrous. 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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