Fitch Predicts Kuwait’s Economy To Recover, Rise In Oil Prices And Increase Spending

In a recent report, Fitch Solutions expects the real spending of Kuwaiti families to recover and to grow by 4.1 percent annually after the Corona pandemic caused it to shrink 4 percent in 2020, Al-Rai reported.

Fitch predicted that the Kuwaiti oil economy will perform better and the oil prices in 2021 is expected to increase due to high oil demands. This will lead to a large push in the country’s economic growth.

Besides, the report indicated that the financial support provided by the Kuwaiti government to families will also help the recovery of the economy in 2021.

The Fitch team specializing in the pharmaceutical and health care sector believes that the access of consumers in Kuwait to the vaccine is likely to have strong household spending in the second half of 2021.

Sales funnel

On the other hand, the report mentioned that the POS data in Kuwait indicates that the recovery has already started since the third quarter of 2020 after easing the curfew measures. The POS data indicated that sales have not only returned to pre-Covid-19 levels after they witnessed a decrease in the first and second quarters of 2020, but sales have also reached their highest levels since the first quarter of 2019.

Fitch believes that if the sales trajectory will continue throughout 2021, this confirms the agency’s view that accelerated demand for goods that are not normally wanted will be a major manifestation of consumer behavior.

Fitch Solutions noted that the outlook for the consumption market in Kuwait during the current year is positive. Nevertheless, while the growth is positive, it stems from a low base due to the large contraction in spending during 2020.

Positive growth

The agency expects that all major consumer spending categories will return to positive growth in 2021, noting that the Kuwaiti family spent primarily on food and beverages in its budget in 2020, and therefore the growth in spending on these items, despite remaining positive, will be slightly lower in 2021.

It is also expected that spending on food and beverages will grow 4.1 percent annually in 2021, less than the estimated growth of 7.4 percent on an annual basis in 2020.

It is estimated that spending in other consumer groups recorded a significant contraction during 2020, as households cut spending on non-essential items, and retail and commercial operations in these categories were also reduced due to the closure. As such, these categories will grow from a low base during 2021 and thus will register stronger growth throughout the year.

On the other hand, Fitch Solutions pointed out that with its positive outlook for consumer spending in Kuwait in 2021 that the Kuwaiti economy will grow at a real rate of 2.7 percent on an annual basis during 2021, compared to a contraction of -5.5 percent in 2020.

Good performance

The agency expects the oil economy in Kuwait to perform well, as the agency’s oil and gas team is likely to increase production by 4.7 percent year-on-year and drive a large part of the country’s growth in 2021. Besides, Fitch Solutions expects Brent crude to reach $ 64 per barrel in 2021, compared with $ 42.5 per barrel estimated for 2020.

Oil is a major source of government revenue in Kuwait, and thus determines the extent to which the government can withstand high levels of employment in the public sector, and also guides the government budget and the state’s fiscal policy.

The agency expects that the unemployment rate in Kuwait, which has remained at an average rate of 2.1 percent of the workforce in 2020, will remain stable in 2021, while the inflation rate is likely to rise to 3.5 percent in 2021, from 2.1 percent on an annual basis in 2020, also, Fitch does not expect that this level of inflationary pressure will spoil expectations for a recovery in consumption in Kuwait.

Risks 

Fitch Solutions’s forecast takes into account the likely risks in the short term, such as easing subsidies.

However, there are risks related to the outlook that, if they arise, would lead to an adjustment of expectations.

Among the risks related to the future outlook of the consumption sector in Kuwait is the disruption of the vaccination process or the collection of vaccines, or the refusal of a large segment of the population to take the vaccination, as this will lead to the extension of the imposed restrictions, which will delay the expectations of a recovery in consumption.

 

SOURCE : TIMES KUWAIT

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