Kuwait will see slower economic growth in 2009 due to falling oil prices and a weakening global economy as the Opec member makes slow progress with diversifying its economy away from energy, EFG-Hermes said.

The only Gulf state without a dollar peg will see its real GDP rising 3.1 percent in 2009 after 5.7 percent in 2008 as oil prices were expected to settle at an average of $85 per barrel next year, the bank said in a country report.

For 2008, it forecast an average oil price of $105.8 million.

Despite the fall in oil prices, EFG said government spending would remain expansionary as Kuwait with its large oil and foreign reserves was able to support its population and plans to upgrade its infrastructure and oil sector.

But the world's seventh-largest oil exporter would make only slow progress to diversify its economy due to tensions between parliament and the government, the bank said.

On Tuesday, the ruler urged deputies to approve more economic reforms to help diversify the economy amid the global credit crisis. Several key bills have been delayed, among them a plan to set up a market regulator to achieve more transparency on the Arab world's second-largest bourse.

"Kuwait is not reaching its full potential as a result of not being been able to implement its reform and investment programme," EFG's regional economist Monica Malik said in the report.

The bank estimated only 14 percent of planned state investment projects have been started or concluded yet -- the slowest rate in the region -- due to parliament's resistance to some projects, poor planning or bureaucracy.

Growth outside the dominant oil sector in the third-largest Gulf economy after Saudi Arabia and the United Arab Emirates would slow to 7.2 percent in 2007 after 8.8 percent in the previous year, EFG said. - Reuters