Kuwait current account surplus improves in Q3 – Strong import growth weighs on trade balance

KUWAIT CITY, Feb 21: Kuwait’s current account surplus improved in 3Q17, as easing remittances and resilient exports countered a larger deficit in services. The surplus rose to KD 0.42 billion, versus KD 0.26 billion in 2Q17, reaching an annualized 4.8% of GDP. Overall, the preliminary current account figures for the quarter had vastly improved from 2016 levels as the oil price rose from lows in 1Q16.

The current account is likely to have continued to rise in 4Q17, given the pickup in oil prices. The current account balance advanced to a KD 1.13 billion surplus during the first three quarters of 2017, compared to a KD 0.43 billion deficit during the same period in 2016, boosted by a rally in oil prices. Kuwait’s export crude price averaged $58.2 during the period, up 36% from the same period in 2016. Still, higher oil prices in 4Q17 should further benefit the current account with the balance for 2017 as a whole expected to be around 4-5% of GDP.

The trade surplus improved in 3Q17 from the prior thanks to a rally in oil prices, with the surplus rising to KD 1.9 billion. Oil export receipts grew by 12.2% year-on-year (y/y) to KD 3.7 billion in 3Q17, despite the restrained production mandated by the OPEC/non-OPEC agreement. The same trend helped push non-oil exports higher by 15.7% y/y to KD 0.4 billion, largely on the back of higher petrochemicals prices.

Strong import growth, on the back of strengthening domestic demand, weighed on the trade balance. Imports grew 13.7% y/y in 3Q17, as higher construction activity increased demand for building materials such as base metal products. Demand for machinery and mechanical equipment also strengthened, as consumer demand for appliances picked up. The rise in imports offset some of the gains made in exports, but the trade balance still managed to improve by 11.2% y/y to KD 1.9 billion in 3Q17.

The robust economy also saw the services deficit widen further in 3Q17, on rising travel and transportation expenditure. The net services balance stood at a deficit of KD 2.0 billion in the quarter, up 34% y/y. Given the recovering consumer sentiment, the strong momentum in travel spending came as no surprise, and remained buoyant at 8.2% y/y in 3Q17.

Rising investment income and shrinking remittances further bolstered the current account surplus in 3Q17. Investment income showed healthy growth growing by 16% y/y to KD 1.5 billion in 3Q17. Investment income has been resilient in the past several quarters, bouncing back after some weakness in 1Q15. Meanwhile, Kuwait continued to accumulate financial assets overseas, supported by the recovery in oil income.

Declining worker remittances has also lent support to the current account surplus. Worker remittances fell by 8.1% to KD 0.94 billion in 3Q17, falling below KD 1 billion for the first time since 1Q12. Cuts in subsidies and increases in various fees have increased the cost of living for expatriate workers. At the same time, an increased emphasis on Kuwaitization has reduced demand for foreign labor.

By National Bank of Kuwait

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