Kuwait real GDP in Q2-18 up by 1.4 pct q-o-q

Higher oil revenues to drive lower GCC budget deficits

Report prepared by KAMCO

Research

Budgets deficits for the GCC region in 2018 are now forecasted to reduce to USD 14 Bn (-0.9% of GDP), an 82% reduction from 2017 budget deficits (USD 79 Bn), based on our analysis of IMF’s general government fiscal balance estimates. The lower deficit is largely ascribed to higher oil prices expected for 2018 and over the medium term, and the ongoing revenue side initiatives and expense side optimization undertaken by GCC governments. Furthermore, as a result of higher forecasted oil prices, the region’s fiscal balance is expected to swing to surplus in 2019, to USD 30 Bn (1.7% of GDP), as against earlier expectations of a surplus only in 2020. Consensus of oil price forecasts and oil price futures point towards USD 70/barrel or higher, and this should aid GCC budgets in our view. Based on IMF’s WEO projections released in Oct-18, Kuwait, UAE and Qatar are expected to report budget surpluses in 2018 and 2019. Current account surpluses are also expected in the GCC over 2018 and 2019, and is expected to average over 7% of GDP over the period.

Inflation trends reported for Aug-18 suggested that overall consumer prices grew across UAE, Kuwait and Qatar, as quarterly inflation indices inched up between 10bps-30bps, while Saudi Arabia and Bahrain witnessed lower CPI levels. Money supply (M2) growth as of Aug-18 declined across the GCC as compared to Jun-18. Credit disbursed across the GCC was positive q-o-q in Q2-18, but witnessed mixed trends in Aug-18 as compared to Jun-18.

KAMCO Research sees better flexibility for fiscal and debt management for the region in 2019.

Q2-18 real GDP estimates of GCC countries point towards growth for the region in 2018, from both oil and nonoil sectors. The backdrop of higher oil prices will also aid the expansionary budgets for 2019, as announced by Saudi Arabia and the UAE in their preliminary budgets. Saudi Arabia’s Ministry of Finance forecasts budget expenditure to climb 7.4% in 2019 to reach SAR 1.106 trillion from their 2018 estimate of SAR 1.030 trillion. Further, UAE announced a 2019 federal budget draft estimate of AED 60.3 Bn, a 17.3% increase from their budget estimate for 2018. Moreover, healthy budget revenues and adequate room in terms of balance of trade should give these GCC countries ample flexibility for debt management, in terms of timing and ascertaining size of future debt issuances. The announcement of pro-expansionary budgets coupled with higher prevailing oil prices are positive

in our view and shows commitment towards diversification efforts and improving non-oil economic growth. However, going forward the nature of the OPEC+ agreement in 2019 and global trade developments will be significant for oil prices and its impact for the GCC region.

Kuwait

Real GDP in Q2-18 grew by 1.4% q-o-q from KWD 9.79 Bn in Q1-18 to KWD 9.93 Bn to Q2-18 driven by growth in both non-oil and oil sectors. The real oil GDP grew 1.9% q-o-q over the same period from KWD 5.46 Bn to KWD 5.56 Bn, while the non-oil GDP grew by 0.8% from KWD 4.33 Bn in Q1-18 to KWD 4.37 Bn in Q2-18. Higher oil prices drove Kuwait’s nominal GDP 8.3% upwards q-o-q from KWD 10.02 Bn in Q1-18 to 10.86 Bn in Q218. Nominal oil GDP grew by 13.1% q-o-q in Q2-18 to KWD 5.49 Bn while non-oil GDP improved by 3.9% q-o-q to KWD 5.37 Bn. On a y-o-y basis, 45.3% increase in nominal oil GDP from Q2-17 to Q2-18 led to a 23.4% increase in Kuwait’s nominal GDP in Q2-18.

Kuwait’s trade balance surplus over Jan’18-Jul’18 posted robust growth of 72.8% y-o-y to reach KWD 5.81 Bn from KWD 3.36 Bn during the same period in 2017. Exports grew by 32.1% y-o-y from KWD 9.27 Bn during Jan’17-Jul’18 to KWD 12.24 Bn during Jan’18-Jul’18, while imports increased by 8.9% to KWD 6.43 Bn over the same period.

Credit facilities extended by Kuwaiti banks by the end of Aug-18 decreased by 0.3% from Q2-18 (Jun-18) to KWD 36.19 Bn. On a y-o-y basis, credit extended improved by 1.7%, driven by the growth in Personal Installment Loans, which grew by 7.1% over the period and accounted for almost a third of the credit disbursed by Aug-18. Credit to the Real Estate & Construction sectors declined on a y-o-y basis, albeit marginally, as Real Estate sector credit went down by 1.7%, while the real estate sector witnessed a 1.5% decline in credit disbursed. Kuwait’s broad measure of money supply (M2) declined marginally by 1.3% KWD 37.92 Bn in Aug-18 from Jun-18 (KWD 38.42 Bn), mainly due to a 6% drop in M1 money supply, from lower currency in circulation (-7%) and slight deposits (-6%).

To be continued tomorrow