Kuwait's non-oil GDP is expected to grow at 4 to 5 per cent over the next two years on the back of several key factors including better project execution and continued strength in the consumer sector, said a report.

But since the Kuwaiti economy remains heavily skewed towards the oil sector – more so as a result of the re-weighting of GDP – overall growth is likely to be muted because of the expected contraction in oil sector output, warned the country's top lender National Bank of Kuwait (NBK) in its latest report.

Kuwait’s GDP had posted an 8 per cent growth in real terms in 2012, above expectations. However, stronger than expected growth was driven mostly by statistical factors: a change in the base year (from 2000 prices to 2010 prices) which saw GDP re-weighted towards the fast-growing oil sector. This aside, the underlying picture was more or less as expected.

The non-oil sector saw steady and unspectacular growth, characterized by high government spending, a weak investment environment and healthier private-sector activity. Non-oil growth should have picked up slightly in 2013, the NBK said in its statement.

The oil sector (including refining) grew by a significant 12 per cent y/y in 2012. This came on the back of large increases in oil production as Kuwait – along other key Opec producers – looked to offset output declines in other countries, notably sanctions-affected Iran, said the lender in its report comparing the growth in 2012.

Kuwait’s crude output rose from under 2.7 million barrels per day to 3 in 2012. But in 2013, production was cut by about 2 per cent, and is expected to see further reductions this year as global oil demand growth remains moderate while non-Opec supplies continue to rise, it stated.  

The non-oil sector grew at a relatively steady – though still modest – three per cent. The star performer in the economy was the manufacturing sector (excluding refining), which saw a huge 24 per cent rise in 2012.

This sector alone accounted for half of the increase in non-oil GDP. The rise was driven primarily by the chemicals segment – largely petrochemicals, said the NBK report .

On the private sector activity, the Kuwaiti lender said it is showing signs of finally picking-up in 2013. Combined output of the construction, trade, transport & communication, and finance sectors – in which private sector firms dominate and which account for more than half of all non-oil output – grew by 4 per cent in 2012, following four years of contraction.

Although this points to some improvement, progress on economic reforms to boost private investment levels would definitely further enhance the performance of these sectors, it added.

On the expenditure side of GDP, growth was driven by government consumption which grew by a large 15 per cent in 2012. Government spending on wage and benefit increases have provided considerable support for the economy, specifically for the consumer sector.

The latter has been the economy’s main bright spot for several years. This has in turn helped private consumption levels, which grew at a steady 7 per cent. Meanwhile, investment spending growth has remained relatively weak at around 3 per cent, reflecting sluggish implementation of government infrastructure schemes, it stated.

On the 2014 outlook, NBK said: "Going forward, we expect growth in the non-oil sector to improve in 2014 thanks to better project execution and continued strength in the consumer sector. We see non-oil growth rising slightly to 4-5 per cent over the next two years."-TradeArabia News Service