As reported by the Intesa Sanpaolo Study Centre, in 2014, Kuwait's GDP growth, equal to 0,1% in real terms, slowed further compared to the already modest +0,8% recorded the year before. Extraction activity decreased by 0,9%, while the dynamics of the non-energy component recorded a growth equal to half that seen in 2013 (+2,1% against +4,2%). Analysts forecast Kuwait's growth rate of 1,2% at the end of 2015 and 2,5% this year, with the energy sector increasing by 2,2% in 2016 thanks to previous investments aimed at increasing the productivity of wells and refining capacity, while for the non-hydrocarbons part it is estimated that there will be an increase in real terms of 3%, even if he believes it will be affected in the short term by the measures to contain current expenditure and by fuel price increases. On the other hand, a greater contribution from the investment side is expected, with the release of the Multi-year Development Plan for the period 2015-19 for an amount equal to about 100 billion dollars.
The slowdown in the economy, relating to the non-hydrocarbons part, was reflected in the dynamics of credit to the private sector. The growth rate from the peak of 8% reached in June 2014 slowed progressively to reach 5,2% in September 2015. The dinar (0,304 KD: 1 USD in the second half of November 2015) depreciated by slightly less by 4% in 2015 while the effective exchange rate appreciated slightly thanks to the strengthening of the dollar against the other currencies in the basket. The inflation trend rate accelerated from 2,8% in December 2014 to 3,8% in August 2015 and then slowed down to 3,1% in September. The average rate is expected to rise to 3,3% this year, from 2,9% in 2014.
Following the decline in revenues from hydrocarbons, the public deficit is expected to rise to 12,5% of GDP during this year, while the public debt as a ratio to GDP is expected to remain low (6,9% in 2014 expected to rise to 9,9% in 2015). Assets in foreign currency, valued byInstitute of International Finance equal to 383% of GDP in 2014, largely exceed the external debt which, according to forecasts by analysts, will rise to 2015 billion by the end of 35 from 33 billion in 2014. Kuwait's financial position is solid and rating agencies consider the debt sovereign currency of Kuwait of very good quality (AA for S&P's and Fitch; Aa2 for Moody's).
If we take a look at the United Arab Emirates, estimates speak of GDP growth which slowed to 3,9% in 2015, from 4,6% in 2014. The slowdown in the energy sector, which increased by 1,6%, was balanced by the resilience of the non-hydrocarbons section which maintained a pace equal to that of the previous year (4,8%). In 2016, mining is expected to be broadly unchanged from the previous year, while other sectors as a whole are expected to expand this year in real terms by 3,8%, compared to 4,8% in 2015 For the economy as a whole, the IMF recently revised its 2,6 GDP growth forecast downwards to 3,1% (from 2015% in the October 2016 WEO).
Compared to other Gulf economies, thanks to the high degree of diversification (where the non-hydrocarbon sector contributes about two-thirds of GDP, while goods in transit and exports make up 60% of outbound flows), to the excellent infrastructures and the wide availability of financial resources in the Sovereign Funds (at the end of December 2015 the same had a capitalization of more than 1.200 billion dollars), the country has a greater capacity to absorb the drop in hydrocarbon prices. Conversely, the Emirates, especially Dubai, due to their role as a commercial, tourist and financial hub, are more exposed than other countries in the region to the slowdown in demand from Asia. The Emirati economy will, however, benefit from the lifting of sanctions against Iran.
However, the continuation of the current phase of price reduction could lead to a downsizing of the investment planespecially in transport infrastructure. Less probable, due to the risk of social repercussions, are cuts in public utility services and building development. In 2015, the inflation trend rate accelerated, reaching a peak of 4,9% in August, then slowed down, closing the year at 3,6%. Inflation is expected to slow down in 2016, with the trend rate expected to be below 3% at the end of the year. Starting from last August, the interest rate began to rise, reaching 1% at the end of December 2015. Further increases are expected in 2016 in the wake of US rates. The appreciation of the effective exchange rate (+17% from March 2014 to December 2015) and the contraction of the current surplus have led the exchange rate to an overvalued condition.
The Consolidated Financial Statements of the Federal Government and the three main Emirates (Abu Dhabi, Dubai and Sharjah) recorded in 2015 the first deficit (2,9%) since 2009. In 2014 the balance of payments current account surplus was $54,4 billion (13,7% of GDP), down from $71,5 billion (18,4%) in 2013. The decrease of almost 50% of the average price of hydrocarbons recorded in 2015 probably led to the almost zeroing of the current surplus. In 2016, with an average price of oil equal to 35 dollars a barrel, the current account would record a deficit of approximately 20 billion dollars.
Il total foreign assets of the Emirates, including those of sovereign wealth funds, banks, individuals and reserves of the Central Bank, at the end of 2015 exceeded 850 billion. Against these assets, the Emirates have an external debt estimated by the IMF at around 200 billion dollars (55% of GDP). Fitch and S&P assign a rating in the high end of the scale (AA) to Abu Dhabi, the Emirate richest in oil resources. In turn, Moody's extended the same rating (Aa2) to the Federal Government.
