Despite Kuwait’s oil price and stock market both heading downwards recently, dashing hopes the Gulf state will balance its budget for the first time in four years, there has been positive real estate and consumer spending news in the country, according to the latest report issued yesterday by the National Bank of Kuwait.

The price of Kuwait Export Crude (KEC) peaked at $83 per barrel in early October, but it has plunged in recent weeks and was down 18 percent to below $70/bbl in mid-November, NBK reported.

“Falling oil prices could yet trigger OPEC production cuts that would lower Kuwait’s headline GDP growth. Moreover, the narrowing in the budget deficit forecast for this year versus last – although still considerable – will be reduced, with the prospect of a balanced budget for the first time in four years now more remote,” the report commentary said.

NBK has estimated that the average oil price this year will be $70 and $67 in 2019. According to the International Monetary Fund (IMF), Kuwait only needs an oil price of $48.1 to achieve breakeven with its budget commitments, compared to much higher prices among its other Gulf neighbours: Bahrain ($113), Saudi Arabia ($87.90), Oman ($77.1), the United Arab Emirates ($71.50) and Qatar ($47.10).

While oil prices fell, tightening the squeeze on budgets, the Boursa Kuwait All-Share index was also down 1.7 percent last month, mirroring a global sell-off.

The country’s stock market had performed well earlier in the year when it was announced the country would join the FTSE Emerging Market index, the impact has waned in the second half of the year.

“Overall, the market has softened relative to earlier in the year, with October being the third consecutive month of falling prices. Looking forward, we expect to see more price support in December from additional passive inflows from the second tranche of FTSE EM inclusion,” the NBK report said.

Below is a summary of the main findings in the NBK report, which showed there was some positivity, despite the negative outlook for oil prices and the stock market:

Property: After a volatile few months, the real estate market has stabilised, driven by higher sales in the residential investment sector. “Sales levels also rose by 38 percent y/y, further evidence of a sector gradually building on the recovery that started last year,” the report said, adding that the increased positivity was mainly in the investment sector, which has risen for the third consecutive month. “Prices were supported by stronger activity, possibly on the back of improving investor sentiment together with a better economic backdrop,” NBK said.

Consumer spending growth was up 2.6 percent year-on-year, spurred by a 13 percent rise in car sales. “Despite the overall softer dynamic, a moderate rebound in spending is still projected and it is seen finishing the year up 4-5 percent helped by strong confidence, good job growth, and low inflation,” the report predicted.

Inflation: Speaking of inflation, the headline rate fell in September to a 14-year low of 0.3 percent year-on-year. This was mainly due to housing rents remaining steady and easing food prices, with fish and seafood prices softening after a spike in July.

Banking: The Central Bank of Kuwait adjusted its lending regulations, allowing customers to borrow up to 25 times their salary, up from 15 times before. An analyst said lenders National Bank of Kuwait (NBK), Boubyan Bank and Warba bank could be the main beneficiaries of the decision, according to a Zawya report earlier this month. (Read the full report here).

Overall, investors appear to be positive on Kuwait’s short-term outlook, with a six-month bond issued recently by the Central Bank of Kuwait oversubscribed by 9.9 times, the bank said in a statement last Tuesday. (Read the full report).

(Read the full NBK report in pdf format)

Further reading:
• Kuwait C.bank sells $7897mln bonds 
• NBK, Boubyan and Warba set to be prime beneficiaries from Kuwait's rise in consumer lending limits, analyst says 
• Kuwait stocks shine in the third quarter as market reforms pay off
• Boursa Kuwait upgrades to emerging markets
• Kuwait already spent $60bln on development, says official
• Kuwait Oil Company awards its largest ever rig contract - report
• Kuwait annual inflation rises 0.18% in October

(Writing by Shane McGinley; Editing by Michael Fahy)
(shane.mcginley@refinitiv.com)

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© ZAWYA 2018