Country Report Kuwait March 2009

Outlook for 2009-10

• The emir will remain the ultimate political authority. Although an election is not officially due within the outlook period, a political crisis between the government and the National Assembly (parliament) could force an early one.
• Kuwaiti foreign policy will remain founded on a long-standing strategic alliance with the US. Efforts at Gulf Co-operation Council integration will also continue.
• We forecast a budget deficit of almost 5% of GDP in fiscal year 2009/10, the first since 1998/99, as oil prices decline in 2009 and oil output is cut. The fiscal account is expected to return to a surplus of 2.8% of GDP in 2010/11.
• Owing to a substantially worse global economic outlook, we now forecast that real GDP growthwhich we estimate rose strongly to 8.5% in 2008will decline to just 0.7% in 2009, before picking up again to 4.3% in 2010.
• We forecast that average consumer price inflation will fall to around 7% in 2009 and further to 5.6% the following year, in line with slowing economic growth and depressed commodity prices.
• As a result of a forecast 59% fall in oil prices in 2009, export earnings are expected to drop sharply. This will dramatically reduce the current-account surplus, which is forecast to average 9% of GDP a year in 2009-10.

Monthly review

• The government's economic stimulus package in response to the global financial crisis has been criticised by parliamentary opposition blocs, raising the spectre of a further deterioration in the legislative-executive relationship.
• The controversy over the now-cancelled petrochemicals joint venture between the US's Dow Chemical Company and Kuwait's Petrochemical Industries Company has shown no signs of abating.
• On February 26th the foreign minister, Sheikh Mohammed Sabah al-Salem al-Sabah, became Kuwait's highest-ranking official to visit Iraq since the latter's invasion of Kuwait in 1990.
• Having been approved by the cabinet on February 5th, the new economic stimulus package has been sent to parliament for its consideration.
• The worsening effects of the slowdown have been revealed by the Ministry of Finance, which released new data showing a sharp decline in the oil, equities and real estate markets at the beginning of 2009.
• Local banks have reported that full-year profits fell in 2008, as provisioning against non-performing loans increased and banking suffered from the generally depressed economic climate.