Kuwait: Growth will slow in 2023

Having likely been one of the strongest growing economies within the GCC last year (second only to Saudi Arabia per our estimates), when the bloc was itself a global outperformer, we forecast that Kuwait will register the slowest pace of growth amongst its peers in 2023. We project an expansion rate of 2.4% this year, compared with an estimated 8.0% last year, which would come in slower than our forecast weighted average growth rate of 3.2% for the GCC. This is not only reflective of the greater portion the oil sector makes up of Kuwait’s economy – still accounting for more than half of total output – but also more limited progress on reforms that would encourage private sector growth and diversification as compared with its peers.

Oil sector growth will slow

According to Bloomberg estimates, Kuwait’s oil production averaged 2.69mn b/d in 2022, which represents an 11.6% increase on the 2.41mn b/d produced in 2021. OPEC+ ramped up production in 2022 as demand rebounded from the Covid-19 pandemic and supply growth from outside of the extended producers’ bloc was limited, providing significant boosts to the GCC’s economies. In 2023, however, we forecast that Kuwait’s output will expand more modestly and have pencilled in oil & gas GDP growth of 2%, leaving the non-oil sector to drive headline GDP growth.

Real GDP growth, % y/y

Source: Bloomberg, Emirates NBD Research

While growth in oil production will slow, we expect that oil revenues will remain high this year, helping Kuwait repair its finances from the extended run of budget deficits which averaged 13.9% of GDP from 2015 to 2022; around 90% of Kuwait’s fiscal revenues come from oil. Last year we estimate that Kuwait recorded a budget surplus for the first time since 2014 at 5.3% of GDP, and we anticipate that this will climb to 6.2% in 2023 as Brent futures average USD 105/b according to our forecasts, higher than Kuwait’s budgeting for a price of USD 80.0/b. This recovery in the finances will reduce the urgency for Kuwait’s parliament to pass a debt law, something that they have not been able to do in recent years. The debt law is required to allow Kuwait to tap international capital markets in the event that the budget is in deficit. Finance minister Abdul Wahab al-Rasheed has earmarked the surpluses for replenishing the General Reserve.

Diversification key for future non-oil sector growth

The high oil price environment and a parliament that is managing to pass budgets and legislation is a positive for the non-oil private sector also, and we forecast real GDP growth of 3.0% this year, compared with an estimated 3.5% in 2022. Kuwait will not be immune from the global pressures that are forcing a slowdown in the world economy, and interest rates have moved sharply higher here also, but moderating inflation will provide some support to households. We forecast that CPI inflation will average 3.0% y/y in 2023, down from an estimated 4.0% in 2022: after peaking at 4.7% in April last year, price growth had fallen back to 3.2% by November. Robust private sector credit growth, which averaged 8.4% y/y in 2022 – compared with an average of just 3.4% over the preceding five years – will also support the private sector economy.

Looking ahead, the IMF cautioned in December that Kuwait must make more headway on its fiscal and structural reforms if it is to move towards ‘more economic diversification and higher competitiveness’, and that a failure to do could ‘amplify the risk of procyclical fiscal policies.’ In this vein, Kuwait continues to pursue its Vision 2035 development programme which seeks to increase its attractiveness to investors. In December, Crown Prince Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah met with Xi Jinping in Riyadh where the Chinese President pledged to support Kuwait in its development aims through participating in construction, telecoms and new energy projects together.