Kuwait non-oil GDP growth seen at 5pc
Kuwait, March 31, 2013
Kuwait's non-oil GDP is expected to grow at 5 per cent in 2013, after a weak growth in earlier years due to the fallout from the global financial crisis, said a report by National Bank of Kuwait (NBK).
The growth in 2011 was affected by falls in output in the trade, manufacturing and finance sectors. The latter was likely affected by continued deleveraging at investment firms, the NBK report stated.
Although growth has probably picked up a little since, a faster pace of government project spending and aggressive economic reforms are needed to provide a more permanent boost to growth, it added.
The recently-released data from the country's top lender showed that Kuwait’s non-oil economy grew by a subdued 0.9 per cent in real terms in 2011 as key sectors continued to feel the fallout from the financial crisis.
In addition, growth in earlier years was revised down from previous estimates, which now show that the non-oil economy contracted for three straight years between 2008 and 2010.
"We expect growth to have picked-up somewhat in 2012, thanks partly to strong growth in the consumer sector, and our forecast for non-oil growth of 5 per cent in 2013 remains unchanged," said the NBK in its report.
But faster implementation of government capital spending projects and a more aggressive approach to economic reforms are needed to put Kuwait’s economy on a permanently higher growth path, it added.
NBK said the real oil sector output jumped by 14.1 per cent in 2011, as Kuwait (and other Gulf Opec producers) responded to rising oil prices by increasing supplies and sought to offset steep falls in Libyan output.
"This increase was more or less in line with expectations. However, because of lower-than-expected non-oil output, overall real GDP growth in 2011 came in weaker than the 7.6 per cent we had estimated, at 6.3 per cent," it added.
According to NBK, the sluggish performance of the non-oil economy in 2011 was driven by falls in output in three sectors: trade, manufacturing (including refining) and finance & business services. The fall in the latter, at 7.2 per cent, was especially large and by itself subtracted some 1.9 per cent points from non-oil growth as a whole.
Within this category, the fall in output came almost entirely from ‘financial institutions’, which includes investment companies that continued to deleverage in the wake of the financial crisis. Output in this segment was 53 per cent lower in real terms than its peak in 2007.
Elsewhere, there were strong performances from the utilities (+10.9 per cent) and community & personal services (+6.4 per cent) sectors – both of which have close government links.
In the latter, for example, public administration & defence, education, health and social security account for 84 per cent of total output. These will have benefitted from the huge 20 per cent rise in public spending on wages & salaries seen in FY 2010/11.
The NBK said the Kuwaiti economy was mainly driven by oil exports and government spending, while investment spending remains weak.
Exports were the fastest growing segment in 2011 – unsurprising, given the policy-driven increase in oil production. Similarly, government consumption grew by a very solid 9.7 per cent, again likely reflecting the solid rise in public employment costs seen during the fiscal year.
The top Kuwait lender pointed out that the gross investment declined by 4 per cent. "These numbers can be very volatile, and the fall does come after a 19.8 per cent increase seen a year earlier (though this in itself followed a sharp fall the year before)."
"We estimate that the public sector (including oil) typically accounts for around half of all investment in the economy, so the government’s poor record in delivering on major infrastructure projects has hit investment levels hard," said the NBK in its report.
"Gross investment in 2011 was still seven per cent lower in real terms than at its peak in 2008," it added.-TradeArabia News Service