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Kuwait Country Risk Reports Q2 2015

Kuwait Country Risk Reports Q2 2015

Core Views

We expect the Kuwaiti economy to perform relatively well over 2015 and 2016, and retain our forecast for real GDP growth of 2.7% and 2.5% respectively, from an estimated 2.9% in 2014. After a long period of stagnation, the Kuwaiti investment outlook appears to be improving, while the prospects for consumption remain bright.

However, we again highlight Kuwait's ever-volatile political situation as the key downside risk to economic activity.

Kuwait has seen a flurry of populist legislation recently, including several measures specifically targeting expatriate workers. This runs the risk of increasing uncertainty within the private sector, as well as cementing perceptions of the country as a hub of policy instability.

We expect tensions to remain between the government and the legislative branch, even with the election of a renewed 'loyalist' parliament.

We forecast average consumer price inflation for Kuwait of 3.8% and 4.0% for 2015 and 2016 respectively, up from 3.0% in 2014. While we expect a slight fall in Kuwaiti food inflation over the near term on the back of lower global prices, a tight supply picture in the real estate market will fuel housing inflation over the coming quarters, in a trend seen across the Gulf Cooperation Council.

Executive Summary
Core Views
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Political Difficulties To Weigh On Investment Outlook
Kuwait's ongoing political crisis will continue to hamper investment activity and long-term economic growth. The government's latest
attempts to quell opposition by stripping citizenship from opponents will only further political paralysis, whilst also hinting towards a more
authoritarian leaning for the current regime, a worrying development for Kuwait's relatively open political system.
Table : Politic al over view
Long-Term Political Outlook
Democracy: No Turning Back
Kuwait's political backdrop is complicated by labour and population imbalances, as well as a parliament which has consistently blocked
the government's reform efforts. Meanwhile, with six dissolutions of the National Assembly and subsequent elections since 2006, the
prospect of new polls and policy instability is always on the horizon.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Lower Oil Prices Add To Woes
Lower oil prices will have a marginal detrimental effect on Kuwait's economy. However, the country's political stalemate will have a
greater impact and ensure only modest rates of growth over the coming years, leaving the country as the laggard of the GCC. We retain
our forecast for real GDP growth of 2.9% and 2.7% in 2014 and 2015 respectively, from an estimated 3.0% in 2013, with investment and
consumption playing a more significant role.
table : Economic Acti vit y
Fiscal Policy
Drastic Fall In Budget Surpluses Ahead
Kuwait's near total reliance on hydrocarbon means lower oil prices will slash the country's budget surpluses from around 25% of GDP to
5% over the coming years. The county will remain in a healthy position compared to other Middle Eastern states and there is little risk of
deficits in our forecast period to 2024. In addition, Kuwait's substantial reserves means the need to tap international debt markets will be
non-existent. The fall in oil prices will force some spending restraint, with subsidy cuts bearing the brunt. CAPEX projects will continue,
although political stalemate, as ever, will hinder their implementation.
table : Fiscal Policy
Banking Sector
Development Plan To Bolster Banks' Outlook
The outlook for Kuwaiti commercial banks is brightening as moderate signs of progress in the government's development plans herald
the prospect of new lending opportunities. A relatively loyalist parliament should ensure the approval of the next five-year development
plan which will present substantial lending opportunities. We forecast credit growth reaching 6.5% by the end of 2015, compared to
6.8% in 2013.
Monetary Policy
Higher Inflation Ahead, But Gains To Slow
Kuwait's consumer price inflation will reach 3.4% and 3.9% by the end of 2014 and 2015 respectively, from 2.7% in 2013. We expect the
housing market to increasingly account for inflationary pressure and for food prices come back to the fore in 2015.
kuwait Q2 2015
Banking Sector
Islamic Banking: Growing To Slow Globally, But Opportunities Remain
We maintain our bullish outlook on the global Islamic Banking sector over the coming years, and while growth rates have peaked, there
are significant opportunities in the Gulf and Pakistan. Growth in Central Asia will remain lacklustre due to political intransigence, with the
notable exception of Kazakhstan.
table : Isl amic Bonds & Loans Issued
Chapter 3: 10-Year Forecast
The Kuwaiti Economy To 2024
High Wealth, Yet Challenges To Growth
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2023,
keeping the government in surplus.
table : Long -Term Macr oec onomic Forec asts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
Table : Oper ati onal Risk
Availability Of Labour
table : MENA – Avail abilit y Of Labour
table : Top Ten Source Countries for Migr ant Labour ('000)
table : Workf orce – Divisi ons of Ocup ati on 
Crime Risk
table : Crime Statistics
table : MENA – Crime
Chapter 5: Key Sectors
table : Aut os Total Market – Historical Data And Forec asts
Food & Drink
table : Food Consumpti on Indicators – Historical Data & Forec asts
table : Soft Drinks Sales , Producti on & Trade
Other Key Sectors
table : Oil and Gas Sector Key Indicators
table : Telec oms Sector Key Indicators
table : Infr astructure Sector Key Indicators
table : Pharm a Sector Key Indicators
table : Defence and Security Sector Key Indicators
table : Freight Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table : Global Asumpti ons
Table : Devel oped States , Real GDP Growt H, %
Table : Emerging Markets , Real GDP Growth , %

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