Kuwait faces recession but will recover over medium term

The Kuwaiti economy is expected to remain in recession through 2024, but is projected to recover over the medium term, the International Monetary Fund (IMF) said.

Real GDP will shrink by 2.8 percent in 2024, primarily due to additional Opec+ production cuts. However, economic activity will rebound in 2025, with a projected growth of 2.6 percent, as production curbs begin to unwind.

The non-oil sector is expected to continue its gradual recovery this year, supported by increased real credit growth. Non-oil GDP is forecast to expand by 2 percent despite fiscal consolidation measures.

Real GDP contracted by 1.5 percent year on year in the second quarter of 2024, driven by a further 6.8 percent contraction of the oil sector, partially offset by a 4.2 percent rebound of the non-oil sector.

Inflationary pressures are expected to ease further, with headline CPI inflation projected to moderate to 3 percent in 2024 amid a fall in imported food prices.

The Gulf nation’s current account surplus will moderate further to 27.2 percent of GDP in 2024 as lower oil prices and production reduce the trade surplus, the IMF said.

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However, fiscal deficit will increase to 6.6 percent of GDP in 2024/25 as lower oil revenue will weigh on expenditure rationalisation.

The IMF cautioned that risks to these baseline economic projections are skewed to the downside as the economy is highly exposed to a number of global risks due to high reliance on oil.

Key external risks include commodity price volatility, a potential global economic slowdown and the escalation of regional conflicts.  

Domestic risks are primarily associated with the implementation of fiscal and structural reforms, which could get further delayed or accelerated. Therefore, reforms are needed to diversify the economy away from oil to enhance resilience and promote private investment, the IMF said.