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Kuwait Business Forecast Report Q2 2009

Published by: Business Monitor International

Published: Mar. 4, 2009 - 64 Pages


Table of Contents


Executive Summary
Annus Horribilis With Tentative Recovery From 2010
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Early Elections Highly Possible As Turmoil Persists
Political turmoil will continue, policy progress (of any hue) will be slow, and early elections are highly possible.
TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Expats Skipping Town
Lower oil prices, OPEC cuts and crashing confidence in the interbank markets will send growth into negative
territory in 2009, while a negative business environment will delay the recovery.
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Fiscal Deficit Ahead In 2009/10
Cutting spending will be hard, and we think the Kuwaiti government will opt to go into deficit rather than risk
stability.
TABLE: FISCAL POLICY
Exchange Rate Policy
KWD: Is There A Serious Threat Of Devaluation?
The government can afford to maintain the dinar peg, but it may opt for some limited depreciation to preserve
cash and boost competitiveness.
TABLE: EXCHANGE RATE POLICY
Chapter 3: 10-Year Forecast
The Kuwaiti Economy To 2018
Long-Term Forecasts: A Closer Look
Kuwait faces substantial structural challenges over the long-term, but the energy sector will continue to grow in
real terms to 2018, keeping the government in surplus from 2010.
TABLE: LONG -TERM MACROECONOMIC FORECASTS
Chapter 4: Special Report
China
A Seismic Upheaval In 2009?
One of the biggest - and least discussed - ‘wild cards’ that could rear its head in 2009 is dramatic political
upheaval in China.
United States
Europe
Big Trouble For European Banks In 2009
The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
combine to spell trouble for the financial services sector in 2009.
TABLE: Banks’ Leverage Ratios
TABLE: Assets As % of Home Country GDP
TABLE: Assets As % of Home Country GDP When Euro zone Is Considered ‘Home Country ’
TABLE: Exposure As % of Total Exposure To Region
TABLE: Banks’ Foreign Exposure (US$ mn)
TABLE: Exposure As % of National GDP
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATI ONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
Market Orientation
TABLE: MIDDLE EAST & AFRICA ANNUAL FDI INFLOWS
BMI TRADE RATINGS
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 6: Key Sectors
Infrastructure
Defence & Security
TABLE: KUWAIT ’S DEFENCE SECTOR GOVERNMENT SPENDING, 2005-2012
Chapter 7: BMI Global Assumptions
Global
TABLE: GLOBAL ASSUMPTIONS
TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % CHG Y-O-Y
Economic Activity
TABLE: DEVELOPED STAT ES, REAL GDP GROWTH FORECASTS
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
TABLE: DEVELOPED MARKET EXCHANGE RATES
Monetary Policy
Commodities
TABLE: EMERGING MARKET EXCHANGE RATES

Abstract

Annus Horribilis With Tentative Recovery From 2010

Economic risks are the main threat to stability in Kuwait as we move into 2009, with a rise in unemploymentand a decline in living standards having the potential to destabilise the country. Thegood times are certainly over: Q209 brings a new downward revision to our average OPEC Basketprice forecast, with our projections having dropped to US$39.50/bbl for 2009 and US$43.50/bbl for2010. However, this will not be a macroeconomic disaster for Kuwait, but parliamentary stagnationand instability makes it more of a concern that some of its neighbours, particularly looking furtherahead to the recovery period, when it will need to entice foreign investors.

On the economic front, things are looking substantially more challenging, but not disastrous, in2009. We see a real GDP contraction of 1.0%, with extensive government infrastructure spendingmitigating declines in consumer spending (exacerbated by the loss of significant numbers of recentlyunemployed expatriate workers), private investment and exports. In conjunction with substantiallylower oil prices, this will send the budget into deficit (to the tune of 6.4% of GDP). The currentaccount will remain in surplus, however, and growth and the fiscal balance will return to positiveterritory in 2010.

The political context in Kuwait remains messy, and we see early elections as a distinct possibilityin 2009 or 2010. The Kuwaiti government is under increasing pressure to deal with the economicturmoil, and, as parliament becomes even more angry with the government, this could lead thelatter to make some potentially damaging decisions. While we would not expect this to result in anymeaningful change of government - parliament is already dominated by the opposition and theroyal family is not about to be overthrown - it could destabilise the country, delay reforms, deterinvestors and lead to even further fiscal laxity.

Political stagnation also continues to affect the business environment, as parliamentarians refuseto approve reform measures. We have warned of the dangers of this phenomenon to foreigninvestment on countless occasions, and, over the last few months this has played out in dramaticform: two important foreign investment deals have been shelved - the al-Zour refinery and DowChemicals deal - at a time where keeping economic activity on an even keel is more crucial thanever. There are also systemic risks in the banking sector, although we expect the government tobail out any lender that looks like it could fail.

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