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Kuwait GDP growth pegged at 2.6% in 2014

 A report prepared by KAMCO Research that analyzes the MENA and GCC Economic trends and outlook and provides a detailed analysis of the current economic situation in each country in the GCC as well as the a brief on the equity markets performance in line with economic changes.

Growth in the MENA region declined to 2.2% in 2013, as oil exporting countries like Libya, Iran, and Syria faced increased geo-political turbulence, along with transition economies like Egypt and Jordan. GCC region also witnessed reduced growth as global oil demand remained weak, and productionfrom non-OPEC nations increased. Growth in 2014 is expected to reach 3.2% (driven by the growing non-oil sector), but would still remain below its average of 4% growth achieved in the last four decades.

Inflation in MENA region continues to remain high (11.5%) as geo-political turbulence in oil importing nations like Egypt drove-up energy prices. On the other hand, political stability has ensured that inflation in GCC nations remained stable (~3%) despite a recovering housing market.

GCC GDP growth came down from 6.4% in 2012 to 4.1% in 2013, as weak oil demand and increasing production from non-OPEC nations led to flattened oil production. Non-oil sector, however, continued its robust performance with an expectation to grow by 5.7% in 2014 after registering a growth of 5.4% in 2013, as GCC nations continue with their diversification efforts. Non-oil growth will accelerate as infrastructure spending rises in the run-up to Dubai 2020 Expo and Qatar 2022 World Cup, and real estate and tourism sectors in the UAE strengthen. Expansion of the non-oil sector is emerging as the key driver, and will help overall GDP growth reach 4.2% in 2014.

Moreover, fiscal stance remains expansionary in nature to drive non-oil growth and reduce dependence on oil revenues. However, with growth in oil revenues flattening amid rising non-oil spend, fiscal balance is expected to go down from 9.9% of GDP in 2013 to 8.3% in 2014; on the other hand, current account balance will decline from 20.2% of GDP to 18.3% in the same time as imports rise on the back of overall economic recovery.

Inflation in the GCC region has remained under 3% despite increased liquidity levels, as housing and food prices have remained low. Money supply went up from USD 1.05 trillion in Q1 2013 to USD 1.19 trillion in Q1 2014, as central banks maintained low interest rates, leading to elevated private lending and consumption levels.

GCC equity markets had a bull run in 2013, led by UAE’s DFM & ADX indices, which were up 107% and 63% y/y. As well, H1 2014 has also witnessed robust performance, but markets seem to be easing-off in May & June with a cyclical correction setting-in and profit booking by investors, and also due to concerns of overheating in UAE’s real estate sector.

Key risk factors in the GCC region:

* Prolonged political uncertainties and domestic unrest could delay the implementation of infrastructure development plans, resulting into cost escalation of these projectsthereby putting additional pressure on state budgets.

* Oil and gas remains the backbone of all the GCC economies which indicates that any significant decline in oil prices would have a direct impact on GDP and revenues thus hampering or delaying capital expenditure in key sectors.

* Further, GCC economies continue to be driven by the energy sector. Although there are efforts to diversify and grow the non-oil sector, fiscal challenges remain as these sectors need additional capital and the efforts to improve fiscal sustainability.

* Although stabilizing, the debt turmoil in Euro Area remains a key risk for the MENA countries given the importance of Europe as a major trade partner.

* Generating jobs in the private sectors for the rapidly growing young population remains a challenge.

Saudi Arabia

KSA’s GDP growth will rebound to 4.4% in 2014, after having dropped to 3.8% in 2013. The growth will be led by the non-oil private sector, which is expected to expand by 6% in 2014 on the back of KSA’s economic diversification efforts. Oil sector, which contracted by 0.7% in 2013 due to weak oil demand and increasing production from non-OPEC nations, will grow by 0.9% in 2014 as global economic recovery helps oil demand and oil prices remain elevated due to the ongoing Iraq crisis.

PMI remains in expansion mode, but is below the 2011 high as prices have come under pressure in 2014 due to weak foreign demand.Manufacturing and construction sectors will continue to lead non-oil growth, with infrastructure spending slated to go up by 25% in 2014.

Inflation in the Kingdom had shot-up from 2.9% in 2012 to 3.5% in 2013, as food and housing rental prices went up by 5.7% and 3.4%, respectively.However, 2014 has seen a reversal in the trend, with inflation down from the peak of 4.0% in April 2013 to 2.7% in June 2014.

Oil exports has declined in 2013 on weak oil demand; as well,the import bill is also declining due to falling inflation in the US and Europe, but the fall in import value is unlikely to offset the drop in oil revenues, and current account balance will fall below USD 100 Bn by 2016, as per IMF.

TASI’s has been up each month since September 2013, and crossed 9,900 in June 2014, a level last seen before the onset of the 2008 crisis,  driven by elevated oil prices and rising liquidity levels. As well, corporate earnings were up 3.5% in 2013, led by steady growth in the heavyweight banking (3.9%) and petrochemical (2.7%) sectors. Going forward, with improving economic fundamentals, corporate profits and earnings can be expected to rise further in 2014.

As compared to other GCC peers, TASI index was the third best performer with annual returns of 25.5% despite a significant decline in average daily volumes. During 2014, Tadawul continued on the positive trajectory with 1H gains of 11.5% coupled with significantly higher average daily traded value. Moreover, the market is currently trading at a P/E of 18.3x on the back of higher earnings reported for the first quarter of 2014 coupled with positive investor sentiments and healthy corporate outlook. The P/BV multiple also inched up to 2.17x during June 2014. As a result of higher valuations, yields declined to 3.15% at the end of 2013 and further to 3.07% in Jun-14.


Kuwait GDP growth is expected to recover from 0.8% in 2013 to 2.6% in 2014, on the back of normalizing global oil demand and accelerated growth in Kuwait’s non-oil sector. During 2013, weak oil demand and increasing production from non-OPEC nations had resulted in a contraction (-2%) of the nation’s oil sector in 2013. However, with global oil demand recovering and oil prices remaining high, oil sector will remain flat or grow marginally in 2014. This, coupled with a projected 4.5% growth in the non-oil sector, will help the overall economic output expand by 2.6% this year. Even though the growth will be higher than 2013, it will remain below the 2011 and 2012 levels of 6.3% and 6.2%, respectively.

With international food prices easing, Kuwaiti inflation has been declining since 2012; the trend has continued this year as well, with inflation remaining stable in the 2.7-3.0% range and ending June at 2.9%.However, a rise in public expenditure (and wages), correction of international food prices, and an expected uptick in housing rent in H2 2014 will mean that annual inflation will end up between 3-3.5% in 2014 (IMF’s forecast is 3.4%).

Current account balance declined in 2013 as oil exports slowed by 2.6%. With oil markets expected to soften, trade- and current account- balance is likely to decline through 2016, though remain healthy. Moreover, expenditure was up 12.2% in 2013-14, but most of it was directed towards public sector wages and subsidies, which need to be curbed. On the other hand, CAPEX growth was muted as project delays continued, a situation that needs to be controlled in 2014-15.

Fiscal position will remain healthy with a surplus of USD 37.8 Bn in 2013-14. But the strong fiscal position is more a result of elevated oil prices and under-spending on infrastructure development, as opposed to a fundamentally strong and well-diversified economy. Short-term fiscal position will remain stable, but continued dependence on oil revenues can lead to reduced long-term growth potential.

Despite the revival in earnings and affirmation of the Aa2 rating by Moody’s, trading activity has been muted due to moderate economic growth, and lack of market catalysts. Moreover, corporate earnings have recovered from the 2008 crisis, and stood at USD 5.7 Bn in 2013, up 13% from USD 5 Bn in 2012.

As well, S&P affirmed its “AA/A-1+” long- and short-term foreign and local currency sovereign credit ratings on Kuwait with “a stable outlook.”


A well-diversified economy has helped UAE outpace the growth of most of its GCC peers in the past few years, and 2014 will be no different. Non-oil sector grew by 5.4% in 2013, and is expected to expand faster in 2014, led by rising growth in the real estate, construction, and tourism sectors. As a result, despite an expected flattening in oil production, UAE’s overall economy is expected to grow by 4.4% in 2014, &4.2% in 2015.

Economic diversification, especially in Dubai, will be boosted as UAE steps up investment in social and physical infrastructure in the run to Expo 2020. Real estate and construction sectors will the biggest beneficiaries of the multi-Bn dollar specialty projects being launched, while trade activity is expected to triple between 2013 and 2020, from Dh 1.39 trillion to Dh 4 trillion.

Real estate and construction sectors have recovered from the 2008 crisis, and are leading the non-oil growth. Their growth will be stimulated by projects worth USD 313 bn that are currently under construction across the infrastructure, residential and non-residential sectors. Real estate recovery also led the surge in equity markets (DFM & ADX) in 2013; however, June 2014 has marked the easing of equity markets as investors concerns around overheating of the real estate market are back.

With the central bank maintaining its 1% interest rate, money supply will continue to rise. However, real estate recovery is being accompanied by rising housing prices, which have pushed inflation to 2.1% in May 2014, up from 0.9% a year ago. With economic recovery strengthening, housing prices are likely to create upward inflationary pressure, and overall inflation might touch 2.5% in 2014. This, coupled with increasing private sector lending (especially to the construction sector), might prompt the central bank to tighten the currently accommodative monetary policy, including introducing more home loan caps in-line with the ones already introduced.

Given its lower dependence on oil revenues, UAE has managed to buck the trend of declining FDI inflows to GCC. Increased infrastructure investment, growing tourism, and Expo 2020 is likely to boost foreign investor confidence further, and help FDI inflows rise above USD 10.5 bn level achieved in 2013.


The continuation of the moratorium on gas production in North Field might lead to contraction of the hydrocarbon economy; however, the planned USD 200 Bn spend on infrastructure development (new airport, seaport, metro, etc.) will see the non-hydrocarbon sector expand by 9.4% in 2014 and by 11% in 2015. High growth in the non-hydrocarbon sector will ensure that overall GDP growth remains in the ~6-7% range in 2014-15. Double digit GDP growth, seen prior to 2012, is unlikely to return unless Qatar decides to expand gas production in the North Field.


Oman’s GDP growth is likely to moderate from 5.1% in 2013 to 3.4% in 2014. The reduced pace of growth is attributable to contraction of the oil sector, which will witness negative growth of -0.7% in 2014, as Oman has used most of its easily recoverable oil reserves and future growth can only be driven by increased adoption of enhanced oil recovery techniques. The non-oil sector, on the other hand, will expand by 5.4% in 2014 as Oman spends USD 78 Bn on the development of social & transport infrastructure as part of its Vision 2020 aimed at economic diversification.


Growth in 2013 was driven by the normalization of output in the Abu Sa’afah oilfield which led to robust growth in oil sector. However, 2014 will see a change in trend, as increased infrastructure spending will push the non-oil economy to grow by 4.4% in 2014 while oil sector growth will remain flat (in line with oil production). As a result, the overall economic output will expand by 4.7% in 2014.

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