Kuwait faces potential GDP contraction for second year

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KUWAIT CITY, May 30: A recent report has indicated that Kuwait may experience a GDP contraction for the second consecutive year due to the weak oil market and production cuts, reports Al-Qabas daily. Kuwait ranked fifth in the MEED Index of Economic Activity, which evaluates the short-term economic health of regional markets. The report highlighted Kuwait’s heavy dependence on oil, with 95 percent of its exports and 90 percent of government revenues originating from the oil sector, making its real GDP highly susceptible to oil price fluctuations.

Despite this, Kuwait still maintains a fiscal surplus. The report also noted the underperformance of Kuwait’s project market, with contracts awarded 40 percent below the long-term average and 25 percent below the completion rate. Meanwhile, the UAE has regained the top position in the MEED Index, surpassing Saudi Arabia. Both countries started 2024 with optimistic growth forecasts of 4 percent real GDP from the International Monetary Fund (IMF).

However, their economic trajectories have since diverged. The IMF revised its 2024 growth forecast for the UAE to 3.5 percent and for Saudi Arabia to 2.6 percent. The World Bank offered a more positive outlook for the UAE, forecasting 3.9 percent real GDP growth, while it projected a lower 2.5 percent growth for Saudi Arabia. The trade and financial balances between the two nations also show significant differences. The UAE is expected to achieve a current account surplus of 7.8 percent of GDP and a fiscal surplus of 4.5 percent of GDP.

In contrast, Saudi Arabia’s current account surplus has decreased to 0.5 percent of GDP, and its budget has slipped into a deficit of 2.8 percent of GDP. Despite these differences, both the UAE and Saudi Arabia remain at the top of the MEED Index, largely due to their thriving enterprise markets. The value of contracts awarded in the past 12 months in both countries was double the long-term average. Furthermore, new projects in the UAE outpaced completed projects by two times, while in Saudi Arabia, new projects outnumbered completed ones by four times. This report underscores the economic challenges faced by Kuwait due to its oil dependency and highlights the contrasting economic trajectories of the UAE and Saudi Arabia, driven by their robust enterprise markets.

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