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Kuwait Country Risk Report Q2 2016

Kuwait Country Risk Report Q2 2016

Core Views

We expect the Kuwaiti economy to see modest growth over 2016 and2017, forecasting real GDP growth of 1.2% and 1.9% respectively.

After a long period of stagnation, the Kuwaiti investment outlook appearsto be improving, while the prospects for consumption remainbright. However, we again highlight Kuwait's ever-volatile politicalsituation as the key downside risk to economic activity.

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

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

We forecast average consumer price inflation for Kuwait of 4.0% and4.1% for 2016 and 2017 respectively, up from 3.3% in 2015. Whilewe expect a slight fall in Kuwaiti food inflation over the near termon the back of lower global prices, a tight supply picture in the realestate market will fuel housing inflation over the coming quarters,in a trend seen across the Gulf Cooperation Council.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
No Escaping A Slowdown
Lower oil prices will have a detrimental effect on Kuwait's economy, weighing slightly on the government's expenditure plans but more
notably on business confidence and consumer spending.
TABLE: KEY ECONOMIC INDICATORS
GDP By Expenditure Outlook
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
New Era Ahead As Huge Surpluses End
Kuwait will record its first fiscal deficit since 1999 in 2016, as oil prices remain weak and spending plans pick up. This deficit will be
short-lived, as small surpluses are recorded from 2017 onwards given cutbacks in expenditure; however, the huge surpluses of much of
the 2000s will become a distant memory.
Structural Fiscal Position
Monetary Policy
Inflation Nearing Its Peak
Inflation in Kuwait will head slightly higher over the coming quarters, pushed up by rising housing costs. Price rises will be capped as we
expect the discount rate to rise from 2.25% currently to 3.00% by year end, in line with the US Fed's move.
Monetary Policy Framework
Banking Sector Update
Development Plans To Bolster Lending Activity
Growth in Kuwait's commercial banking sector will slow, given the decline in oil prices and thus current expenditure. The impact of this
will be slightly mitigated by mild improvements in the operating environment and a pick-up in government spending and construction
activity.
Chapter 2: 10-Year Forecast
The Kuwaiti Economy To 2025
High Wealth, Yet Challenges Remain
Kuwait faces substantial structural challenges over the long term, but the energy sector will continue to grow in real terms to 2025,
keeping the government in surplus.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Little Impact From Break In Relations With Iran
Kuwait's decision to break diplomatic ties with Iran represents only a slight deterioration in the country's political risk profile and we see
little to no economic impact. Generally, Kuwait faces few external risks, especially given improving relations with Iraq.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Democracy: No Turning Back
Kuwait's political backdrop is complicated by labour and population imbalances, as well as a parliament that 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 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: MIDDLE EAST AND NORTH AFRICA – TRADE PROCEDURES AND GOVERNANCE RISK
TABLE: REQUIRED TRADE DOCUMENTS
TABLE: TRADE PROCEDURES
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: KUWAIT – MACROECONOMIC DATA & FORECASTS

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