Kuwaiti economic growth will return to positive territory in 2018 owing to increasing oil production and robust government investment, according to a new report by BMI Research.
The research note said Kuwait is set for economic recovery this year, despite OPEC's decision to extend oil production cuts until the end of this year.
"While ostensibly the decision means that Kuwaiti oil production should remain flat in year-on-year terms, tempering potential economic gains, BMI's oil and gasteam are expecting OPEC members (including Kuwait) to comply less strictly with quotas in 2018," the report said.
BMI noted that it sees rising oil production as likely to offer moderate economic tailwinds to Kuwait's growth in the second half of 2018, adding that the Kuwaiti economy will expand by 3.5 percent in 2018, up from an estimated contraction of 1.1 percent in 2017.
BMI also said it sees upside for the non-oil sector in 2018, owing to robust government investment in infrastructure, with BMI's infrastructure keyprojects database listing over 50 publicly funded projects that are either underway or at planning stage.
Analysts added that they believe that Kuwaiti authorities will use any windfall from higher oil prices to bring down the bulging budget deficit, which they estimate will come in at 15.9 percent of GDP in 2018, down from an estimated 21.3 percent in 2017.
"While we anticipate an uptick in growth, risks to our forecast are skewed to the downside in Kuwait. Our view that the oil production (and hence the economy) will expand in 2018 is premised on the view that oil prices will rise and incentivise lower compliance with OPEC production commitments than was the case in 2017," BMI said.
It added: "In the event that prices do not rise in line with our expectations, owing for example to weaker global demand or greater-than-expected supply from US shale, we would expect Kuwait (and other members) to rein in production to closer to the OPEC quota level and this would weigh on headline
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