GIH report on Kuwait

Oil exports, being the main driver of the economy, declined across the entire year and according to revised CBK figures, Kuwait averaged an oil & gas production level of 1.84mn b/d (source: CBK Annual Report 2002) in 2002 compared to 2.04mn b/d in 2001, a decline of nearly 9.8%.

Oil prices had been on the decline for the major part of the year, before picking up towards the end of the third quarter 2002. The production cut nevertheless overshadowed price increases, resulting in a decline in the share of value added by the oil & gas sector to GDP.

The contribution by the oil and gas sector declined to 41.03% compared to an average of 43.33% for the previous three years (1999-2001) and 43.7% in 2001 specifically. Despite these conditions, the nominal GDP increased to reach KD10,737.5mn, although real GDP is estimated to have declined by 2%.

On the other hand, the non-oil segment saw a rise in its contribution to GDP to cover for the marginal decline witnessed by the oil sector. Non-oil sector GDP has seen steady increases for the majority of the post-invasion period.

Total non-oil GDP increased to KD6,331.9mn in 2002, an increase of 7.2% as compared to KD5,909.3mn registered in 2001. All the non-oil segments saw increases during the period with manufacturing industries and electricity & water leading their way.

Manufacturing industries, which includes the petroleum products industry, grew by 10.5%, increasing its share of GDP to 6.9% in 2002 as compared to 6.4% in 2001.

Within the manufacturing industries segment, the petroleum products accounted for KD430.6mn, a growth of nearly 15% in 2002. Of the non-petroleum industries, chemical production is said to have increased the most from within the segment accounting for KD42.3mn in 2002, showing a growth of 14.3%.

As we have been explaining in our past reports, one of the key indicators of analyzing GDP in the GCC region is to look at the GDP by expenditures. Like 2001, domestic demand and consumer spending were strong in 2002, despite the global slowdown and the uncertain political atmosphere residing during the latter half of the year.

According to revised figures from the Central Bank, domestic demand showed a strong growth of 11.3% in 2002 leading to a value of KD9.8bn. Similarly, consumer spending also registered strong growth, as private consumption increased by 11.3% to reach KD5,986mn.

Investment spending, the backbone of any economy also increased. The gross capital formation, which is mainly the capital spending by the government, continued to progress recording an increase of 7.6%.

Both positive political and economic developments in Kuwait and the region have boosted forecasts for 2003 to reflect the expansionary climate Kuwait currently enjoys, high levels of average oil prices and increased exports.

In spite of a forecasted decline in oil prices by the fourth quarter of the year, combined with the expected strong increase in levels of government expenditure, the EIU nevertheless forecasts real GDP growth of around 4.2%, after an estimated 2% contraction in 2002.

Global believes that nominal GDP is also set to grow pointing to increased private consumption. Capital formation is also expected to continue its growth as the investment activity in the private sector continues to flourish, backed by high liquidity.

The new government has already shown its intent of taking measures towards supporting private sector investments because of its amplified importance in relieving the government of the adverse effects of over-reliance on oil.