In a session hosted by KCIC, an investment firm specializing in investments in Asia, and with the participation of the National Bank of Kuwait (NBK), economists downplayed the doom view of Kuwait’s economy, saying that oil revenues will continue to drive surpluses for the long-term.
“We keep hearing about the pessimistic economic predictions for Kuwait, as the media tend to highlight the most dramatic of the scenarios, but the worst case scenario will only materialize if no reform or counter measures are taken. On our part, we estimate a fiscal surplus of KD10 billion for Kuwait this year. We also remain positive in our long-term outlook for Kuwait despite some projections or scenarios showing fiscal deficits a few years out, because such events do not happen overnight and it can’t be expected that the government will not act upon it. There are economic initiatives that need to be taken. These are expected gradually over time and the economy is in good shape now,” said NBK’s Chief Economist, Elias Bikhazi in the session that was attended by economists, financial sector analysts, and diplomats in Kuwait.
The discussion was led by Bikhazi and KCIC’s Chief Economist, Francisco Quintana, who presented an economic outlook on Kuwait, the GCC, and emerging markets in the backdrop of of the current political environment.
Bikhazi held the view that non-oil GDP growth will continue to be driven by the increase in public spending and in corporate lending to fund landmark development projects such as Jaber Al-Ahmad Bridge project, Al Zour North IWPP, and Boubyan Port project.
NBK’s outlook and estimate on Kuwait’s government budget expenditure:
Bikhazi added that Kuwait’s outlook also applies to GCC economies, where non-oil growth reached an average of 5% over the past two years, with gas-exporting Qatar leading the way. In addition to non-oil growth, high oil prices are also expected to sustain the large surpluses in the near term. Inflation is expected to be moderate, but has to be monitored because of rising housing costs.
Fortunately for the GCC, said Bikhazi, global demand for oil is steady and supporting oil prices near US$100 per barrel, and the steady global official interest rate environment supports little or no change in GCC official policy rates.
Global economy outlook:
As for the rest of the world, KCIC’s Quintana highlighted that the consensus view by which rich economies recovered and emerging countries faltered requires some fine-tuning. Quintana said “We notice through the most recent available data that, indeed, the G3 economies grew significantly and reached early 2012 levels. However, in spite of the headlines highlighting the deceleration in emerging markets, growth in these countries as a whole remained stable, and they are still growing twice as fast as developed economies. Asia’s emerging markets specifically are growing twice as fast as the rest of the emerging markets, and thus outpacing major global economies.
Quintana also discussed how the denomination “emerging markets” hides in reality a large variety of countries with very different problems and expectations. “Most Asian economies depend on themselves to navigate this period of weak global demand successfully,” he added.
KCIC expected the global economy not to see a strong recovery because of the ongoing debt crisis, the softening growth in the US housing sector, in addition to the weak global demand and the structural weakness of the European economy.
China’s stimulus has also been cited by analysts since 2011 as a potential driver to bring the economy back to pre-crisis levels, but that is unlikely to happen this year. Quintana said: “China’s position is very interesting because it’s the only country trying to slow its economy down, with lower investment-induced growth, and a reduction in non-official lending. If China achieves its endeavor, it will be the most successful experiment in the history of economics.”
Prior to joining KCIC, Quintana worked as an advisor to the Deputy Mayor for Economic Affairs at the City of Madrid and as an economist at the World Bank in South East Asia. He holds a BA in Economics from the University of Malaga, a MSc in Development Economics from SOAS and a MPA from IE Business School.
Bikhazi spent over twenty years as an economist on Wall Street, working for Deutsche Bank, amongst other banks. He also has a background in trading and in academia; he taught economics and statistics for several years at Bentley University, Massachusetts. Bikhazi holds a Ph.D. degree in economics from the University of Southern California in Los Angeles.
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