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MENAFN - Arab Times - 25/01/2014

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(MENAFN - Arab Times) Latest official data show that Kuwait's GDP grew by 8% in real terms in 2012, above expectations (2013 data is not yet available). However, stronger than expected growth was driven mostly by statistical factors: a change in the base year (from 2000 prices to 2010 prices) which saw GDP re-weighted towards the fast-growing oil sector. This aside, the underlying picture was more or less as expected. The non-oil sector saw steady and unspectacular growth, characterized by high government spending, a weak investment environment and healthier private-sector activity. Non-oil growth should have picked up slightly in 2013.

The oil sector (including refining) grew by a significant 12% y/y in 2012. This came on the back of large increases in oil production as Kuwait - along other key OPEC producers - looked to offset output declines in other countries, notably sanctions-affected Iran. Kuwait's crude output rose from under 2.7 million barrels per day to 3.0 in 2012. But in 2013, production was cut by about 2%, and is expected to see further reductions this year as global oil demand growth remains moderate while non-OPEC supplies continue to rise.

The non-oil sector grew at a relatively steady - though still modest - 3%. The star performer in the economy was the manufacturing sector (excluding refining), which saw a huge 24% rise in 2012. (Chart 2.) This sector alone accounted for half of the increase in non-oil GDP. The rise was driven primarily by the chemicals segment - largely petrochemicals.


Private sector activity also showed signs of finally picking-up. Combined output of the construction, trade, transport & communication, and finance sectors - in which private sector firms dominate and which account for more than half of all non-oil output - grew by 4% in 2012, following four years of contraction. Although this points to some improvement, progress on economic reforms to boost private investment levels would definitely further enhance the performance of these sectors.

On the expenditure side of GDP, growth was driven by government consumption which grew by a large 15% in 2012. (Chart 4.) Government spending on wage and benefit increases have provided considerable support for the economy, specifically for the consumer sector. The latter has been the economy's main bright spot for several years. This has in turn helped private consumption levels, which grew at a steady 7%. Meanwhile, investment spending growth has remained relatively weak at around 3%, reflecting sluggish implementation of government infrastructure schemes.

Going forward, we expect growth in the non-oil sector to improve thanks to better project execution and continued strength in the consumer sector. We see non-oil growth rising slightly to 4-5% over the next two years. But since the economy remains heavily skewed towards the oil sector - more so as a result of the re-weighting of GDP - overall growth is likely to be muted because of the expected contraction in oil sector output.

In addition to the new 2012 data, revisions were made to the 2011 figures which saw real non-oil growth revised to 4% from the 1% reported earlier. The main source of revision was from the manufacturing sector, in which growth was revised up from -3% to 20%, though the underlying source of this large change is unclear. Despite the rebasing, the shares of each sector within non-oil GDP were essentially unchanged.
Overall growth in 2011 was also revised up to 10% from 6% previously, but this was mostly due to the higher weight given to the strong-performing oil sector. The oil sector's contribution to real GDP stood at 59% in 2011, from 42% in the previous weighting. The sector grew by some 15% y/y, accounting for more than 80% of the increase in GDP growth. Parallel revisions on the expenditure side came primarily from stronger net exports.

 






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