Kuwait: 2002 economic data

In its latest economic brief on Kuwait's gross domestic product (GDP), National Bank of Kuwait reports that economic activity recovered in 2002 with GDP rising by 2.3% to reach KD 10.74 billion, according to figures released recently by the Ministry of Planning (MOP). The recovery follows a decline of 7.6% during 2001.

The non-oil sector was the main source of growth as it registered a rise in output of 6.2%, accelerating from 4.0% in 2001. The sector's contribution to GDP rose from 54% to 57%. Leading private sector activities including wholesale and retail trade, real estate and business services witnessed a pick-up, while financial institutions and construction experienced slower growth. Together, these activities account for roughly two-thirds of private sector GDP.

Petroleum refining also contributed to growth as production capacity was fully restored following a major accident in 2000. But the drop in the value of oil and gas output was far greater, causing oil GDP to fall by 2.5%.

MOP figures included upward revisions of 2000 and 2001 GDP estimates, to 27.8% and -7.6% from 23.7% and -8.5%, respectively. The bulk of the revisions were made in estimates of value added by the electricity, gas and water sector due to a change in methodology used. Estimates for this sector had generally been negative in the past reflecting below-cost revenue levels due to the high degree of subsidization by the government. The new methodology results in positive estimates that reflect value added by producers.

Oil GDP shrank by 2.5% to KD 4.84 billion following an 18% decline during 2001. The drop, which sees the contribution of the oil industry fall to 43% of GDP, was mainly a result of lower crude oil production due to a 10.5% decline in Kuwait's OPEC quota. An 11% increase in the average price of Kuwait crude helped compensate for the decline in the output quota during 2002.

Petroleum refining recovered in 2002 with the value added in this sector increasing by 15% to reach KD 431 million. Repairs to Kuwait's largest refinery that was damaged by a June 2000 accident were completed in September 2002, thereby restoring production capacity to its pre-accident level.

More than half of the growth in non-oil GDP came from the largest sector consisting of community, social and personal services. This sector, with a 58% share of the non-oil economy, grew by 8.7% mainly from growth in public administration & defense, education and health services. The increase in public administration and defense followed a flat year in 2001. Growth in education was consistent with the previous two years at 5.4%.

Activity in the wholesale and retail trade sector picked up with growth accelerating to 8.0% from 6.0% in 2001. The increase coincided with a sharp rise in imports. This sector benefited from the strong growth seen in household spending bolstered by the continued recovery in employment and a strong increase in consumer loans.

Trade represents one of the largest private sector activities with value added estimated at KD 678 million. It accounted for 10.8% of non-oil GDP and about twice as much of private sector GDP.
Other important private sector activities contributing to growth were real estate and business services, rising 5.2% and 9.3%, respectively.

In contrast, growth in value added by financial institutions was relatively anemic at 1.6%. The share of the finance, real estate and business services sector in non-oil GDP fell to 23.1% from 23.7% a year ago. Together with trade they account for more than 60% of private sector activities.

The manufacturing sector, which had been shrinking over the previous three years, finally saw positive growth of 4.7%. Growth came mainly from chemicals (excluding refining), non-metallic minerals and fabricated metallic products, reporting increases of 14%, 7% and 3.2%, respectively.

Meanwhile, food, beverages and tobacco saw a limited recovery following a sharp drop in 2001, with value added increasing by 1.5%.

The communications sector, which had seen strong growth throughout the last ten years and a 29% increase in value added in 2001, experienced a slowdown registering an increase of 2.2% only. This sector had undergone a rapid expansion on the back of strong demand for mobile and internet services in Kuwait over the last decade.

Another sector experiencing slower growth was construction whose value added rose by 1.3% despite indicators pointing to an increase in building activity. Growth over the last five years has averaged 1.9%, well below the 5.9% in non-oil GDP.

Domestic demand increased by 11.3%, well above the revised 6.0% growth seen during 2001 and the average of the previous five years of 4.6%. The bulk of this increase came from strong growth in private and government consumption. Increased investment spending also made a contribution albeit a smaller one.

Private consumption has seen substantial growth in recent years reaching 11.3% in 2002, the highest since 1996. Increased hiring of Kuwaitis by the government and an improved economy has helped boost household spending in general. This was further facilitated by a rapid expansion in consumer loans, and supported by demographic trends of a fast growing population and acceleration in household formation that had been key drivers of growth in recent years.

A long awaited pick-up in government spending was finally visible in 200. The recovery reflects a shift in focus of fiscal policy to play a more expansionary role in the economy, made possible by relatively high oil prices and record budget surpluses over the past three years. Government consumption increased by 12.6% compared to 0.9% in 2000 and 1.5% in 2001.

An even bigger increased in spending on public infrastructure projects resulted in a 7.6% increase in gross capital formation. Still the share of investment spending in domestic demand was relatively small. At KD 979 million, gross investment represented 9.1% of GDP while net capital formation was a mere 4.9%.

Gross national product (GNP) declined by 2.2% to KD 11.74 billion. The decline was due to a sharp drop in net factor income from abroad (NFIA) which decreased by 34% to KD 1 billion, its second consecutive sharp decline. NFIA has been hurt by the drop in interest rates in most economies as well as the continued weakness in equity returns in the US and Europe.

As a consequence, net national savings fell sharply, declining by 41% to KD 1.81 billion following a 39% drop the previous year. Net savings in 1999 had peaked at KD 4.97 billion.
Per capita GNP fell by 7.2% to KD 4,966. The decline exceeded the drop in GNP due to a rapid 5.4% growth in the population.

A swell in then number of expatriate workers driven by a pick-up in non-oil domestic activity was a main factor behind the jump in the size of the population.

Still, per capita GNP as a measure of household income in Kuwait is limited by the fact that it includes income to the public sector. Per capita private consumption may be a better measure instead. During 2002 per capita private consumption increased by 5.7%, near the five-year average of 5.6%. The figure, standing at KD 2,533 during 2002, is the highest on record.