Nominal GDP up 16% to KWD 51.3 bn in 2012

KUWAIT CITY: Latest national accounts data show that Kuwait’s nominal GDP grew by 16% in 2012 to KD 51.3 billion, more or less in line with expectations. Growth was mostly driven by the oil sector, which benefitted from both higher prices and production volumes, although the non-oil sector also grew at a reasonable pace. Because these figures incorporate price as well as volume changes, they are not a perfect guide to the underlying state of the economy. But they do broadly confirm our view of a steady, if unspectacular growth environment, with government spending and oil exports the main drivers. The oil sector (including refining) saw growth of a hefty 19% in 2012. The average price of Kuwait Export Crude oil rose to a record of $109 per barrel (pb), up 3% on a year earlier.

But more significantly, crude oil output grew by 12% to 3.0 million barrels per day as Kuwait — along with other key OPEC producers — kept oil output high in order to offset reduced supply in other countries, notably sanctions-affected Iran. As a result of these changes, the oil sector’s share of GDP rose to 66%, the highest since 1980. Growth in the non-oil sector stood at a more moderate — though respectable — 10%. This represents a continued improvement from the past few years, and a slight acceleration from the 8% seen in 2011. The increase was driven primarily by two sectors: manufacturing (excluding refining), which saw a huge 28% rise, and ‘other services’, which grew by 14%. The former reflected a strong performance from the chemicals sector — largely petrochemicals, though the precise source of the rise is not clear; key petrochemical prices were more or less unchanged in 2012.

The jump in ‘other services’ output — mostly government-related — was largely due to the education sector, where output rose 20% to KD 1.9 billion. This was almost certainly linked to increased spending on public sector educators’ salaries in 2012, which had been already highlighted in the public finance statistics. Probably for similar reasons, the output of other public service segments (such as defense and health) also saw decent-sized gains. Between them, the manufacturing and ‘other services’ segments accounted for more than two-thirds of the 10% increase in non-oil GDP.

Although a breakdown of public and private sector output is not available, there is some evidence that private sector activity has also improved. 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 6% in 2012, up from 1% in 2011 and two years of recession before that. This seems to signal an economy whose growth is not just accelerating, but also becoming slightly more broad-based.
On the expenditure side, growth was unsurprisingly driven by government consumption and exports (mostly oil), which grew by 17% and 16%, respectively. The increase in government consumption was the largest for more than two decades — again, related to the big increase in expenditures on public sector wages and salaries seen last year. Private sector consumption grew at a steadier 10%. Investment spending saw another modest year, rising by 7% to KD 7.8 billion. As a result, investment as a share of GDP fell to 15%, its lowest for 11 years. Despite growing strongly for much of the previous decade, soft overall investment levels remain one of the Kuwaiti economy’s main weaknesses, affecting both the quality of its infrastructure and its competitiveness in the Gulf region. Key to this has been the sluggishness of government investment, which we estimate accounts for around half of all investment in the economy but which has underperformed its budget targets for years.

Overall, these figures do little to change our view on the broader trends in the economy. The economy remains heavily skewed towards the oil sector, growth in which is likely to be muted this year: oil prices have so far (on average) been broadly unchanged from 2012 and output is already close to capacity. However, growth in the non-oil sector should continue to gradually gather steam. We expect real non-oil GDP growth of 4-5% this year, with nominal growth comparable to that seen in 2012.

Arab Times 2013, Sep 14 2013