Kuwait inflation hits three-year low
Kuwait, July 13, 2013
The inflation in in Opec member Kuwait fell to a three-and-a-half year low of 1.6 per cent y/y in March 2013, and is also well down on the levels of last year mainly driven by falling food prices which has dropped to -0.9 per cent y/y from 10 per cent y/y in March 2012, said a report.
But excluding food, the ‘core’ inflation has also remained low, standing at 2.4 per cent in March, said the National Bank of Kuwait (NBK) in its latest GCC Brief.
Given the recent trends in global food prices, inflation overall may now have bottomed out, and could edge higher over the coming months, the country's top bank said.
But despite the broad strength of the consumer sector, we expect inflation to remain in the 2-4 per cent y/y range over the forecast horizon, helped by moderate inflation rates in neighboring countries, it stated.
The macro picture remains comfortable, with growth moderate, inflation low and high oil revenues generating vast budget and trade surpluses, said the top Kuwaiti lender in its report.
However, hoped-for improvements in execution of government mega projects – which would boost investment levels and catalyze activity in the private sector – have been slow to materialize.
The eventual start-up of large projects in the power and transport sectors in the second half of 2013 should gradually feed through to stronger growth in the non-oil economy, which we now see rising from 4.5 per cent this year to 5 per cent in 2014, the NBK report stated.
The activity in the consumer sector – which has been the backbone of the non-oil sector in recent years – should also remain strong, supported by hikes in benefits, low inflation, and the government’s latest debt relief measure, it added.
According to NBK, solid employment growth has also helped as the jobs growth averaged three per cent per year in the three years to 2012, and 4.6 per cent per year for Kuwaiti nationals. But there are challenges going forward.
While the share of employed Kuwaitis working in the private sector has continued to rise, the increase has slowed sharply in recent years.
Securing rapid and sustainable private sector job growth will require both faster implementation of government projects and economic reforms that improve the economy’s long-run sustainable rate of growth, the report added.
On the energy front, NBK said the oil output was cut significantly in early 2013, to 2.7 mbpd in March from 3 mbpd in December. Some of this may have been a response to seasonal factors, which usually see global oil demand weaken in the first half each year.
Nevertheless, early signs are that output could fall quicker than we had expected as leading Opec countries look to offset supply increases elsewhere, said the top Kuwaiti lender in its report.
"We now expect real hydrocarbon GDP to fall by 3 per cent this year and remain unchanged in 2014 (versus 0 per cent and -2 per cent before, respectively). This lowers the headline rate of real GDP growth to 1.3 per cent in 2013 and 2.9 per cent next year, from 6.5 per cent in 2012," the report added.-TradeArabia News Service