Kuwait trade surplus narrows to KD5.3 billion in Q3 2014

NBK ECONOMIC REPORT

KUWAIT: Kuwait’s trade surplus narrowed slightly to KD 5.3 billion in the third quarter of 2014, as oil exports fell and import growth strengthened. The surplus remains strong, though it narrowed to its lowest level in three years mainly on lower oil prices. The decline in non-oil exports and strong rise in import demand have also added downward pressure on the trade balance recently. With oil prices falling further since 3Q14, we can expect the surplus to narrow further in the coming quarters. Still, Kuwait’s external buffers are substantial, with a relatively large trade surplus projected at 47 percent of GDP for 2014.

Oil export earnings fell by 9 percent year-on-year (y/y) in 3Q14 and currently stand at KD 7.4 billion. Oil export earnings were mainly driven lower by a decline in oil prices. Kuwait Export Crude (KEC) price fell by 4.2 percent y/y in 3Q14, after rising by 4.4 percent y/y in the previous quarter. Oil export volumes witnessed a rebound in 3Q14, growing by a solid 26 percent y/y, after declining by 4.3 percent y/y in 2Q14. The jump in oil export volumes was not enough to counteract the decline in oil prices. Oil export revenue growth is projected to soften further in the near- to mediumterm, as oil prices continue to average lower. By early 2015, KEC had reached $40 per barrel, approximately 60 percent lower than the average price witnessed during the same period in 2014.

Non-oil exports declined by 9.6 percent y/y in 3Q14 after growing by 5.9 percent y/y in the previous quarter. Non-oil exports were mainly driven lower by further declines in ethylene prices. With ethylene prices expected to maintain their weakness in the mediumterm, non-oil export growth is set to remain soft.

Imports continued to strengthen into 3Q14, growing by 10.4 percent y/y. Import levels climbed to a new high of KD 2.3 billion in 3Q14, thanks in large part to a stronger Kuwaiti dinar. The dinar is pegged to a basket of major currencies and has been on a strengthening streak since mid-2014 mainly due to a stronger US dollar. Imports are likely to continue to climb on the back of a stronger currency, healthy consumer demand and the pickup in economic activity as investment spending gains momentum.