Kuwait Business Forecast Report Q4 2007

Macro Outlook Bright, Reform Prospects Less So

The outlook for Kuwait remains bright, as we move into Q407, with high oil prices, strong growth - preliminary figures suggest real GDP could have grown by as much as 9.7% in 2006 - and a buoyant stock market all painting a very encouraging picture. The economy is still too dependent on oil, and planned reforms continue to stall in the face of parliamentary opposition. However, it would take an OPEC basket price of US$8/bbl to take the current account into deficit, and as such the outlook is robust, at least over the forecast period. Meanwhile, three revaluations in two months have proven the central bank's commitment to tackling inflationary pressures.

Politically, Kuwait remains overridingly stable, but its relatively strong democratic credentials will continue to pose a risk to the reform outlook over the forecast period. The power struggle between the government and the opposition-dominated parliament will continue. Any progress on pro-business legislation - such as the planned reduction of corporate income tax for foreign firms - would be a very positive sign. Externally, though, we see few threats. Kuwait's departure from the planned currency union may have irked a few of its neighbours, but since the single currency was a long way behind schedule anyway, we doubt it will be a major cause of tensions.

From an economic standpoint, Kuwait retains its very strong ratings (81.9 in the short-term and 78.0 in the long-term ratings). Indeed, we have revised up our government consumption growth forecasts, on the back of slightly higher oil price assumptions, which have resulted in higher overall growth projections. We now see economic growth coming in at 6.8% next year, slowing only to 3.6% by the end of the forecast period. Likewise, our current account forecasts have risen. Inflation has been our only real concern with the economy - apart from long-term structural issues such as the overdependence on oil - and the series of currency revaluations and re-pegging to a basket bode well in this regard.

While Kuwait's ample liquidity and wealthy consumer market will remain attractive, there is a historical lack of market orientation, which may make investors nervous, particularly given recent political stagnation. Indeed, market orientation is the lowest-scoring area for Kuwait in our business environment ratings. It scores 53.2 in this area, compared with 57.8 for infrastructure - also disappointing given wealth levels, but with upside risks posed by current projects - and a score of 59.5 for institutions. Even this latter score is only saved by the low tax regime. Kuwait scores just 39.4 for the 'opening and closing a business' sub-component.

• Executive Summary
• Macro Outlook Bright, Reform Prospects Less So
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Politics
  • Strong Democratic Credentials
  • The Kuwaiti government remains stable in overarching general terms, but there are short-term policy risks thanks
  • to the belligerent opposition-dominated parliament
  • Table: Cabinet List
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Economic Activity
  • Upward Growth Revisions, Outlook Still Bright
  • Kuwait looks better equipped than some of its neighbours to maintain the oil-liquidity derived growth boom it has
  • seen over the last few years, with government spending likely to remain a key driver even as external factors dry up
  • Table: Economic Activity
  • Balance of Payments
  • Double-Digit Surpluses To Remain
  • The current account will continue to record double-digit surpluses, buoyed by oil revenues and the return on Kuwaiti
  • investments abroad
  • Table: Balance of Payments
  • Exchange Rate Policy
  • Limited Upside Ahead
  • Table: BMI Kuwait Currency Forecasts
  • Table: Market Data-Deposit Rates
  • Table: Market Data-FWDS
  • Regional Monetary Policy
  • GCC Currency Plan Stuck In Neutral
  • Table: GCC Macroeconomic Data & Forecasts
• Chapter 3: Special Report
  • Global Inflation
  • Becoming A Concern Once More
• Chapter 4: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Issues
  • Labour Force
  • Table: Demographic Indicators 2005
  • Foreign Investment Policy
  • Table: Kuwait Annual FDI Inflows
  • Table: Middle East & Africa Annual FDI Inflows
  • Foreign Trade Regime
  • Tax Regime
• Chapter 5: Key Sector
  • Power
  • Primary Energy Demand
  • Table: Kuwait Power - Historic Data & Forecasts