Kuwait Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	64
ISBN Number	1745-0624
Product Code	BMI03522

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Summary

Annus Horribilis With Tentative Recovery From 2010

Economic risks are the main threat to stability in Kuwait as we move into 2009, with a rise in unemployment and a decline in living standards having the potential to destabilise the country. The good times are certainly over: Q209 brings a new downward revision to our average OPEC Basket price forecast, with our projections having dropped to US$39.50/bbl for 2009 and US$43.50/bbl for 2010. However, this will not be a macroeconomic disaster for Kuwait, but parliamentary stagnation and instability makes it more of a concern that some of its neighbours, particularly looking further ahead to the recovery period, when it will need to entice foreign investors.

On the economic front, things are looking substantially more challenging, but not disastrous, in 2009. We see a real GDP contraction of 1.0%, with extensive government infrastructure spending mitigating declines in consumer spending (exacerbated by the loss of significant numbers of recently unemployed expatriate workers), private investment and exports. In conjunction with substantially lower oil prices, this will send the budget into deficit (to the tune of 6.4% of GDP). The current account will remain in surplus, however, and growth and the fiscal balance will return to positive territory in 2010.

The political context in Kuwait remains messy, and we see early elections as a distinct possibility in 2009 or 2010. The Kuwaiti government is under increasing pressure to deal with the economic turmoil, and, as parliament becomes even more angry with the government, this could lead the latter to make some potentially damaging decisions. While we would not expect this to result in any meaningful change of government - parliament is already dominated by the opposition and the royal family is not about to be overthrown - it could destabilise the country, delay reforms, deter investors and lead to even further fiscal laxity.

Political stagnation also continues to affect the business environment, as parliamentarians refuse to approve reform measures. We have warned of the dangers of this phenomenon to foreign investment on countless occasions, and, over the last few months this has played out in dramatic form: two important foreign investment deals have been shelved - the al-Zour refinery and Dow Chemicals deal - at a time where keeping economic activity on an even keel is more crucial than ever. There are also systemic risks in the banking sector, although we expect the government to bail out any lender that looks like it could fail.

Content

Executive Summary
- Annus Horribilis With Tentative Recovery From 2010
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Early Elections Highly Possible As Turmoil Persists
- Political turmoil will continue, policy progress (of any hue) will be slow, and early elections are highly possible.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Expats Skipping Town
- Lower oil prices, OPEC cuts and crashing confidence in the interbank markets will send growth into negative
- territory in 2009, while a negative business environment will delay the recovery.
- Fiscal Policy
- Fiscal Deficit Ahead In 2009/10
- Cutting spending will be hard, and we think the Kuwaiti government will opt to go into deficit rather than risk
- stability.
- Exchange Rate Policy
- KWD: Is There A Serious Threat Of Devaluation?
- The government can afford to maintain the dinar peg, but it may opt for some limited depreciation to preserve
- cash and boost competitiveness.
Chapter 3: 10-Year Forecast
- The Kuwaiti Economy To 2018
- Long-Term Forecasts: A Closer Look
- Kuwait faces substantial structural challenges over the long-term, but the energy sector will continue to grow in
- real terms to 2018, keeping the government in surplus from 2010.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political
- upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- BMI TRADE RATINGS
- Operational Risk
Chapter 6: Key Sectors
- Infrastructure
- Defence & Security
Chapter 7: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- TABLE: POLITICAL OVERVIEW
- TABLE: ECONOMIC ACTIVITY
- TABLE: FISCAL POLICY
- TABLE: EXCHANGE RATE POLICY
- TABLE: LONG -TERM MACROECONOMIC FORECASTS
- TABLE: Banks' Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Euro zone Is Considered 'Home Country '
- TABLE: Exposure As % of Total Exposure To Region
- TABLE: Banks' Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
- TABLE: BMI BUSINESS AND OPERATI ONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- TABLE: MIDDLE EAST & AFRICA ANNUAL FDI INFLOWS
- TABLE: TOP EXPORT DESTINATIONS
- TABLE: KUWAIT 'S DEFENCE SECTOR GOVERNMENT SPENDING, 2005-2012
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % CHG Y-O-Y
- TABLE: DEVELOPED STAT ES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- TABLE: EMERGING MARKET EXCHANGE RATES