Kuwait economy set to rebound with oil output rise and government spending
Kuwait’s economy is set to recover this year, after shrinking in 2017, on the back of increased government spending and an expected rise in oil production in the coming months.
Gross domestic product is expected to accelerate to 2.5 per cent this year after falling 2.9 per cent in 2017 as Opec shifts its policy towards increasing oil output, according to the National Bank of Kuwait, the country’s largest lender.
Non-oil growth is forecast to grow 3.5 per cent this year, up marginally from 3.3 per cent last year.
“The economy remains on an improving trend, with activity gradually expanding,” NBK said in a report.
Kuwait’s economic rebound comes after a slowdown triggered by a three-year drop in oil prices. Global producers agreed last month to boost output by a combined 700,000 to 1 million barrels per day as prices returned to highs of $80 per barrel.
The country’s GDP, adjusted for inflation, grew 1.6 per cent in the first three months of the year compared to a year earlier, according to Kuwaiti state news agency Kuna. The nation’s oil sector contributed 48.4 per cent to the economy in the first quarter, up from 44.5 per cent in the same quarter a year earlier.
NBK forecasts Kuwaiti oil production will rise to 2.8 million bpd in the second half of 2018 following Opec’s decision. Oil GDP will rise 1.5 per cent this year and in 2019, the bank said.
Non-oil growth is also expected to pick up as the government increases spending in the 2018-19 fiscal year for the first time in four years, which should help to offset the impact of rising interest rates.
The government needs to take structural measures to boost the economy’s long-term growth potential, NBK said.
Key reforms include encouraging job creation in the private sector to ease pressure on the government absorbing most of the new entrants to the workforce, and improving the overall business environment.
The projects pipeline, bogged down by continuous delays, is expected to boost non-oil growth over the next few years, NBK said.
Kuwait is scheduled to award 4 billion dinars (Dh48.5bn) in projects this year, similar to 2017, but should experience a revival from the infrastructure sector and optimism on public-private partnerships, the report said.
Inflation is forecast at an average 15-year low of 1 per cent this year, down from 1.5 per cent last year, because of falling housing costs.
Inflation in Kuwait, which has delayed the introduction of VAT until 2021, will rise to 2.5 per cent next year.
The country’s budget deficit will narrow slightly to 5 per cent of GDP this year due to rising oil prices and production, NBK said.