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Kuwait well placed to withstand lower oil prices-QNB

Kuwait well placed to withstand lower oil prices-QNB
Photo Credit: Arabianeye-Reuters

Kuwait is well placed to withstand lower international oil prices with strong macroeconomic fundamentals and the lowest breakeven oil prices amongst the GCC countries, said QNB Group in a report that examines recent developments and the outlook for Kuwait’s economy.

According to the report, Kuwait’s Real GDP is projected to slow in 2015 to 1.0% as the government cuts subsidies before recovering in 2016 and 2017 to reach 1.8% and 3.3% respectively , as major development projects get underway.

In the hydrocarbon sector, the government plans to invest $100 billion in 2015-19 on boosting production, upgrading refineries, petrochemicals and transportation—the Burgan oil project, among others, should accelerate oil production growth starting in 2017.

QNB believes that non-hydrocarbons will be the main engine of growth, driven by government investments, including the Kuwait Metro, the new port and the redevelopment of the airport.

Inflation is expected to rise as subsidies are reduced, with the largest impact in 2015 (4.2%), subsiding to an average 4.0% in 2016-17.

The Gulf-rich state has announced plans to substantially cut current spending in 2015, mainly through the removal of subsidies on diesel, electricity and water, healthcare and petrol.

Meanwhile, foreign inflation is likely to slow in 2015 as commodity prices fall on weak global demand, but this is expected to be reversed in 2016-17, leading to higher foreign inflation.

Kuwait is expected to witness a small fiscal surplus in 2015, of around 1.6% of GDP, as the government cuts back expenditure; the surplus is projected to widen in 2016-17 to reach 4.9% of GDP on average, as hydrocarbon revenues recover on higher oil prices.

Deposits are likely to see slow growth in 2015 as lower fiscal surpluses reduce oil-related flows to the banking sector, but this should reverse in 2016-17.

On the credit side, Kuwait’s credit growth will be slightly faster on robust consumer lending, stated the report.