Kuwait: Country Economic Forecast: 06 Jan 2012

A new government has been sworn in with a new premier, Sheikh Jaber. Parliamentary elections are now set for 2 February. But the power struggle between the 50-member parliament and a government still dominated by the al-Sabah family is unlikely to be resolved without political reform. This is bad news for much-needed and already heavily delayed economic reforms and various oil and infrastructure projects. Growth is now slowing due to weakness in key markets, including the EU, US and Japan, lower oil prices and the impact of political instability. GDP growth is forecast to slow to 3.9% in 2012 from an estimated 4.8% in 2011. Oil production is expected to stabilise around current levels, rising by some 5% in 2012 after an 11% rise in 2011. Consumer prices were flat in November, pushing annual inflation down to a 16-month low of 4.2%. Inflation has been falling steadily since last May, in part because of lower imported inflation, and we expect it to have averaged 4.8% in 2011. While food and commodity prices will fall in 2012, other factors, including fiscal and monetary policy loosening, will keep overall inflation around current levels - we expect it to average 4.5% in 2012. With merchandise exports expected to have jumped by some 42% in 2011 on surging oil prices, the current account surplus is also likely to have risen sharply, to about US$63bn (39% of GDP) from US$36.8bn in 2010. For 2012, lower oil prices are forecast to cut the surplus to some US$54bn.