The following is a report produced by the National Bank of Kuwait forecasting the Kuwaiti economy in 2011. Real gross domestic product (GDP) should advance 4.7 percent this year, with consumer price index (CPI) inflation near 4.7 percent. Higher oil prices and production, in light of recently lost Libyan output, should shore up that sector. The consumer sector remains well anchored by stable employment, and was further helped by the recent Amiri grant. The grant allotted an average 5,000 Kuwaiti dinars (18,000 US dollars) per Kuwaiti family in February. The rest of the economy (construction, business services) remains more dependent on the now familiar five- year plan and its projects.
Those are feeding slowly through the pipeline. The real estate sector recovered nicely in 2010 and is still improving. The total value of real estate sales was up 53 percent in 2010 over 2009, at KD 1.9 billion. In the first quarter (Q1) of 2011, the leading segment, apartments/buildings, was up 90 percent year-on-year (y-o-y). That sector is finding favor with income/yield hungry investors. The five-year KD 31 billion plan (ends in early 2014) called for spending five billion dinars on infrastructure in FY 2010/2011 (that just ended in March). The government expects actual spending (or execution, if you will) to be KD 2.5 billion or 50 percent when the closing accounts of the year are in. We expect a slightly stronger 57 percent. On a preliminary basis, the government estimates that infrastructure spending related to the plan will be KD 5.4 billion in the current FY 2011/2012. That pace of execution/spending can only improve with time. More spending will also materialize when the new public-private companies (PPPs) are formed and start business in earnest. Two of the largest PPPs will be established this year, if things stay on schedule.
The Kuwait Health Assurance Company (KHAC) will be taking over, from the state, the mandatory insurance and health care of expatriates. The choice of the Kuwaiti partner to manage/part-own this venture is slated for the next few months. The other imminent large PPP company will be formed later this year to build and operate an independent water and power plant (IWPP) in North Al-Zour. If the five-year plan is executed faithfully, the growth of the non-hydrocarbon sector should overtake growth in the oil sector.
The plan is indeed structured to diversify the economy away from hydrocarbons. As per the first five-year plan, only 20 percent of the new projects are in the oil sector, and 80 percent in non-oil. While this mix could change going forward, the Kuwait Petroleum Company (KPC) has announced close to $95 billion in hydrocarbon projects in the next few years (current plan and beyond). However, the overarching goal remains to favor the non-hydrocarbon sector in the future.
Consumer price inflation stood at four percent in 2009 and 2010. We expect a rise to 4.7 percent in 2011, on higher food prices. Meanwhile, Kuwait remains exceptional worldwide with an extremely strong fiscal position.
