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publication October 19, 2020

Kuwait's Economic Update — October 2020

A peaceful view of Kuwait cityscape during sunrise.

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While performance in 2020 will suffer from the twin shocks of COVID-19 and the oil price slump, growth in Kuwait has been tapering since 2014. The inevitable fiscal deficit increase from declining oil revenue and crisis mitigation spending, and funding needs for the Future Generations Fund are exacerbating pressure on fiscal buffers, in the absence of a debt law. While less exposed to internationally hard-hit sectors than its GCC neighbors, long-standing rigidities will impede adjustment to the protracted COVID-19 shock.

Real GDP posted a modest decline of 1.1% in Q1-2020; non-oil growth contracted by 3.5% while real oil GDP increased by 1.2% with the OPEC+ deal lapse. Broad-based measures to stem the pandemic included suspending flights, closing schools/ universities, banning public gatherings, suspending nonessential work, and imposing 24-hour curfew. Kuwait’s persistence with variants of these measures is one of the longest continuous stretches in the world. These measures have significantly impacted private spending, investment activity and overall GDP starting Q2-2020.

The protracted nature of the pandemic and slow government response has led to a downgrade in forecasts. Real GDP is now expected to contract by 7.9% of GDP in 2020 (compared to -5.4% forecasted in June 2020) as non-oil GDP growth is subdued by protracted public health measures and the constrained fiscal mitigation measures, while oil GDP contracts in compliance with the OPEC+ agreement.