Kuwait's non-oil economy picked up in 2012 and is expected to maintain robust growth through 2013 after sluggish performance in 2011 because of the effects of the 2008 global fiscal crisis, a key bank in the Gulf emirate has reported.
"Non-oil GDP expected to grow at 5% in 2013, after weak growth in earlier years," National Bank of Kuwait (NBK) said in its latest report on Kuwait.
It cited official data showing Kuwait's non-oil economy grew by a subdued 0.9% in 2011 as key sectors continued to feel the fallout from the financial crisis.
Growth in 2011 was affected by falls in output in the trade, manufacturing and finance sectors, the report said, adding that the financial sector was likely affected by continued deleveraging at investment firms.
"Although growth has probably picked up a little since, a faster pace of government project spending and aggressive economic reforms are needed to provide a more permanent boost to growth," the report said.
It said that GDP growth in earlier years was revised down by the government from previous estimates, which now show that the non-oil economy contracted for three straight years between 2008 and 2010.
"We expect growth to have picked-up somewhat in 2012, thanks partly to strong growth in the consumer sector; and our forecast for non-oil growth of 5% in 2013 remains unchanged. But faster implementation of government capital spending projects and a more aggressive approach to economic reforms are needed to put Kuwait's economy on a permanently higher growth path."
The report showed that real oil sector output jumped by 14.1% in 2011, as Kuwait and other Gulf OPEC producers responded to rising oil prices by increasing supplies and sought to offset steep falls in Libyan output.
"This increase was more or less in line with expectations. However, because of lower-than-expected non-oil output, overall real GDP growth in 2011 came in weaker than the 7.6% we had estimated, at 6.3%."
A breakdown showed sluggish performance of the non-oil economy in 2011 was driven by falls in output in three sectors: trade, manufacturing (including refining) and finance & business services. NBK said the fall in the latter, at 7.2%, was especially large and by itself subtracted some 1.9% points from non-oil growth as a whole.
Within this category, the fall in output came almost entirely from financial institutions, which includes investment companies that continued to deleverage in the wake of the financial crisis, it said, adding that output in this segment was nearly 53% lower in real terms than its peak in 2007.
"The bulk of this deleveraging is now likely behind us. As a result, the sector's negative contribution to non-oil growth should ease going forward."