QNB: Kuwait is well placed to withstand lower oil prices

Qatar National Bank (QNB) Group has published its Kuwait Economic Insight 2015. The report examines recent developments and the outlook for Kuwait’s economy. Kuwait is well placed to withstand lower international oil prices with strong macroeconomic fundamentals and the lowest breakeven oil prices amongst the GCC countries.
According to the report, Real GDP is projected to slow in 2015 (1.0%) as the government cuts subsidies before recovering in 2016 (1.8%) and 2017 (3.3%) as major development projects get underway.
In the hydrocarbon sector, the government plans to invest USD100bn in 2015-19 on boosting production, upgrading refineries, petrochemicals and transportation the Burgan oil project, among others, should accelerate oil production growth starting in 2017.
Non-hydrocarbons are expected to be the main engine of growth, driven by government investments, including the Kuwait Metro, the new port and the redevelopment of the airport.
Inflation is expected to rise as subsidies are reduced, with the largest impact in 2015 (4.2%), subsiding to an average 4.0% in 2016-17.
The government has announced plans to substantially cut current spending in 2015, mainly through the removal of subsidies on diesel, electricity and water, healthcare and petrol.
Foreign inflation is likely to slow in 2015 as commodity prices fall on weak global demand, but this is expected to be reversed in 2016-17, leading to higher foreign inflation.
 A small fiscal surplus is expected in 2015 (1.6% of GDP) as the government cuts back expenditure; the surplus is projected to widen in 2016-17 (4.9% of GDP on average) as hydrocarbon revenues recover on higher oil prices.
The government has announced plans for a 20% cut in current spending in 2015, which will mainly be achieved by reducing subsidies This will moderate expenditures throughout 2015-17 despite a growing wage bill and an increasing amount of public investment.
Public debt remains low at 6.2% of GDP at end-2014, while the government has a large positive foreign asset position through its sovereign wealth fund We expect slower deposit growth in 2015 as lower fiscal surpluses reduce oil-related flows to the banking sector, but this should reverse in 2016-17 Credit growth will be slightly faster on robust consumer lending.
Kuwait’s strong macroeconomic fundamentals should support asset quality going forward; we therefore expect profitability to rise on falling NPLs and high capitalisation.