Report Published: "Kuwait Business Forecast Report Q2 2013"

New Country Reports market report from Business Monitor International: "Kuwait Business Forecast Report Q2 2013"

by Bill Thompson

(WireNews+Co) - Boston, MA - 22 February 2013

Core Views - We forecast Kuwait's budget surplus to reach approximately KWD11.0bn (US$39.1bn) and KWD8.2bn in FY2012/13 and FY2013/14 respectively, down from a record surplus of KWD13.2bn in FY2011/2012. We expect oil receipts to reach their peak over the current fiscal year, with flat output growth and lower prices signalling a fall in revenue in FY2013/14. At the same time, current spending is set to grow further going forward, while recent political evolutions could give renewed (and much-needed) momentum to capital expenditure.

Consumer price inflation in Kuwait should see modest growth over the next few quarters, after an overall tame year in 2012. We expect inflation to average 4.0% year-on-year (y-o-y) through 2013, with a deceleration in food prices and continuing government subsidies on basic consumer staples helping to keep the headline print under control.

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Major Forecast Changes

The Kuwaiti economy should perform relatively well over 2013, with robust domestic consumption continuing to drive growth. However, a plateau in oil production means that Kuwait is unlikely to achieve the breakneck pace of growth seen in previous years, and we have revised downward our real GDP forecast for 2013 to 3.0%, from 3.7% previously. The government's newfound domination of the legislative branch offers a sizeable upside risk, as it could pave the way for an acceleration of long-delayed economic reforms.

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. Furthermore, the regime's renewed domination of parliament, following legislative elections in December, 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.

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