Global Investment House – Kuwait – Economic & Strategic Report- On real terms, Kuwaiti economy reported another year of growth by the end of 2007. Real GDP continued its northward journey, estimated to have reported around 6.6% of annual growth by the end of 2007 reaching KD19.58bn. Such growth was on top of 6.3% growth reported last year. Oil prices hiked considerably during the same period thus supporting the high growth rates. On nominal terms, GDP reported another year of impressive growth recording a new landmark of KD28.6bn by the end of 2006. This level translates into 21.4% of annual growth on top of the highest growth rate ever of 34.7% reported for 2005. Regarding 2007, we estimate nominal GDP has grown for the fifth year in a row by a rate above 20% to reach KD34.4bn.
Gross Domestic Product
2001 2002 2003 2004 2005 2006 2007*
Nominal GDP (KD bn) 10.7 11.6 14.3 17.5 23.6 28.6 34.4
Nominal GDP (US$ bn)** 37.6 40.8 50.1 61.6 83.0 100.8 120.9
Nominal GDP Growth Rate -7.5% 8.3% 23.0% 22.9% 34.7% 21.4% 20.0%
Real GDP (KD bn) 11.6 11.9 14.0 15.5 17.3 18.4 19.6
Real GDP (US$ bn)** 40.8 42.0 49.3 54.6 60.8 64.6 68.9
Real GDP Growth Rate 0.2% 3.0% 17.3% 10.7% 11.4% 6.3% 6.6%
Per capita GDP (KD) 4,633.8 4,789.5 5,596.9 6,361.3 7,887.6 8,999.2 10,110.8
Per capita GDP (US$) 16,299.1 16,846.5 19,686.4 22,375.1 27,743.8 31,654.0 35,563.8
Crude Oil Production (mn b/d) 1.95 1.75 2.17 2.34 2.50 2.52 2.46
Avg. Kuwait Crude Export Prices (US$/b) 21.4 23.6 26.9 34.1 48.7 58.9 66.4
*Global Estimates
**1US$=0.284KD
Source: Central Bank of Kuwait, OPEC
Supported by the high GDP growth rates that surpassed population growth rates, Per Capita GDP has improved significantly from KD7,887 (US$27,743) in 2005 to KD8,999 (US$31,654) in 2006, an increase of 14.1%. As for 2007, per capita GDP is estimated to have recorded a new landmark of KD10,111 (US$35,564), or 12.4% of annual growth.
Oil and gas sector dominates….
Similar to all GCC countries, analyzing GDP by economic activity continued to reveal Oil and gas as the dominant sector within GDP. Its share in GDP has increased from 36.6% in 2002 to 52.4% in 2006. The sector’s high growth rates over years have contributed significantly in its role in the Kuwaiti economy. On CAGR basis, the sector has registered 27.7% during the five-year period 2001-06. On annual basis, the sector’s output reported the highest growth ever by the end of 2005 registering 56.4% of growth. That was followed by 27.5% growth reported by the end of 2006 when the sector’s output stood at a new landmark of KD15.6bn. Strong growth in oil prices was the main reason behind spectacular performance of the sector, which was in-line with most of the countries in the region. As such, the overall GDP performance used to mirror Kuwait Export Crude (KEC) prices over years.
Among the other sectors, manufacturing sector has grown at a CAGR of 23.8% during the five-year period 2001-06, led by refined products. The output of the refining sector increased from KD1.71bn in 2005 to a new landmark of KD1.97bn in 2006, or 15.2% annual growth. The refined products industry is essentially related to oil and gas sector, which reinforces the importance of oil in Kuwait economy. Other non-oil sectors which have registered good growth in recent years include ‘Financial Institutions’, and ‘Transport, Storage and Communications’. Respectively, both sectors accounted for 11.8% and 4.7% of GDP by the end of 2006. Moreover, ‘Financial Institutions’ sector continued to play a major role in the Kuwaiti economy reporting 40.5% annual growth by the end of 2006 on top of 66.5% of growth reported for 2005. On the other hand, ‘Transport, Storage and Communications’ sector continued its growth from last year however at a declining rate reporting 13.5% of growth as compared with 17.4% reported in 2005.
Net Exports and Consumption led the economy….
Analyzing GDP by type of expenditure revealed the fact that Kuwait economy was primarily a consumption led economy up to the end of 2005. Through the period 2001-05, final consumption –both private and public- continued to account for the major share of GDP followed by net exports. By the end of 2005 they formed 32.2% and 15.7% respectively of the GDP. However, it is important to note that, over years final consumption’s contribution to GDP continued to decline in favor of the increasing share of Net Exports. As a result, Net Exports accounted for the highest contribution in GDP for the first time during 2006. As shown below, Gross Fixed Capital Formation (GFCF) almost stayed at the same level -16.3% on average- over the period 2001-06. However, final consumption lost a huge share of its contribution (25%) in favor to net exports that increased its contribution during the period from 15.8% to 41.6% by the end of 2006.
GDP by type of Expenditure
Source: Central Bank of Kuwait
On CAGR basis, private and government consumption reported the lowest growth rates over the period 2001-06 recording 11% and 9.8% respectively. GFCF, which was not very significant till a few years back, has registered good growth recently. It has grown at a CAGR of 23.3% during the period, much higher than consumption spending. We believe that the share of GFCF in GDP will go up in the coming years in view of government’s focus on capital expenditure. The government has stressed on maintaining a significant rate of investment in public spending because of its important role in activating the economy.
On the forefront of the economy for the last three years has been the net export segment. The booming oil prices as well as the expanding economy have both played a major role in the Kuwaiti economy as well as the rest of GCC thus boosting both exports and imports. However, exports continued to grow at higher pace than imports thus resulting in an increasing positive contribution for net exports. Moreover, the increased government revenues from oil exports had its impacts on almost all GCC governments’ budgets thus boosting capital expenditures and development plans allover the region. Mirroring those plans was the ongoing growth in imports trends. Similarly, increased standards of living and higher per capita income boosted expenditure and consequently imports.
Growth will be sustained….
Looking forward, we believe that Kuwaiti economy will continue its growth journey to report average annual growth rate of 5% to 7% up to the end of 2010. Afterwards GDP is expected to report higher growth rates depending on both the implementation of oil expansion plans to double crude oil production from 2mn b/d to 4mn b/d and controlling inflation levels. The hiking oil prices for the last couple of years support our views for the robust Kuwaiti economy. Currently, the Oil market is facing lots of tensions whether in supply or refinery capacities in addition to political issues in the Middle East. Thus it is an unlikely scenario for the short term to see oil prices declining sharply in a way that might negatively affect economic growth sharply, whether for Kuwait or for the GCC as a whole. On the Kuwaiti front, we have seen KEC price remained firm above US$50/b since February 2007 and reached higher levels above US$100/b for 1Q08. Finally, we foresee that KEC prices anywhere above the US$50/b level will secure the ongoing economic boom for Kuwait for the year 2008. Moreover, the robust economic conditions and increased private spending as well as a strong pick up in gross fixed capital formation driven by several capital projects will help the economy to sustain its growth rate up to 2010.
