Kuwait, the Arabian Gulf country most dependent on oil, will be the hardest hit in the region from a global oil output cut that will lead to a 2.2 per cent economic contraction this year, the Institute of International Finance (IIF) said in a report released Friday.
Kuwait is an Opec member which is adhering to a global deal to trim oil production by 1.8 million barrels per day (bpd), an agreement which has been extended till the end of March next year.
“Considering that Kuwait is still the most hydrocarbon dependent country in the region, there is a need to diversify the economy,” IIF said. “The focus should remain on further increases in public investment (which is still the lowest among the GCC), and improvement in the business environment, as Kuwait lags other GCC in terms of global competitiveness and doing business.”
The Washington DC-based financial trade association’s projections for Kuwait are more bearish than the World Bank, which forecasts that it will be the only Gulf country to contract this year by 1 per cent. With the Opec output cut coupled with the low oil price environment, Kuwait will struggle as the hydrocarbon sector makes up about 60 per cent of the country’s GDP and around 95 per cent of its export revenues, according to figures from Opec.
IIF is projecting 0.2 per cent growth this year for the Gulf region, including up to 2 per cent in 2018. However, the World Bank expects the economy to increase to 0.7 per cent this year, topped by 1.9 per cent next year.
IIF also expects Saudi Arabia’s economy to shrink 0.5 per cent this year because of the global oil deal and fiscal consolidation, but said the kingdom will recover and grow 1.2 per cent next year.
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Saudi Arabia, the world’s biggest oil exporter and Opec’s largest producer, fell into recession in the first half of this year as oil prices remained depressed for the third consecutive year. This threw the kingdom into action with a new economic diversification plan dubbed Vision 2030 that also features incremental targets.
“Over the medium term, growth [in Saudi Arabia] is expected to strengthen as structural reforms are implemented,” said the IIF. “But uncertainties remain and are related to the future prices of oil and how current reforms will affect the economy.”
Meanwhile, the UAE is expected to fare well given that it is the most diversified in the region. Growth this year will decline to 1.6 per cent and rebound in 2018 to expand 2.9 per cent.
“The UAE continues to be the best managed economy in the region,” the IIF said. “The Emirates with large financial buffers [estimated at around US$670 billion], safe-haven status, perfect infrastructure, sound banks, and diversified and business-friendly economy will help the economy cope with prolonged low oil price environment.”