Kuwait Economic Brief - Amazon S3 · 2017-10-09 · Kuwait Economic Brief October 2017 Government spending accelerates in November...Credit growth to close 2012 at 5.5%...KD 12 billion

Kuwait Economic Brief

October 2017

Government spending accelerates in November...Credit growth to close 2012 at 5.5%...KD 12 billion budget surplus expected for FY 2012/13

An update of recent developments in select sectors in Kuwait published byEconomic Research at NBK

Consumer sector sees signs of recovery; real estate prices hold in August; Kuwait equities join emerging markets

Kuwait Economic Brief - October 2017

Contents Oil markets 1Oil prices gain in September on signs the physical market is tightening

Monetary developments 4Credit growth at 3.5% in July, as month sees some weakness

Consumer price inflation 6Inflation softens to 1.2% in August on deflationary housing costs

Consumer sector 8Early signs of recovery of the consumer sector

Real estate 10Seasonality dampened real estate activity in August, though prices held firm

Stock market 12 Boursa Kuwait steady in September despite FTSE upgrade

1NBK Economic Research, T: (+965) 22595500, F: (+965) 22246973, [email protected], © 2017 NBK, www.nbk.com


Chart 1: Crude oil prices($/bbl)

Source: Thomson Reuters Datastream

Chart 2: Brent forward curve ($/bbl)

Source: Bloomberg

Chart 3: Brent/WTI front month spread($/bbl)


Highlights

• Brent up near 1-year high of $57/bbl, while WTI breaks through $50/bbl, as oil prices enjoy second consecutive month of gains.

• Sentiment improves on signs that the physical market is tightening, but market rebalance is unlikely before 2019, the IEA notes.

• The IEA has revised its demand growth estimates for 2017 upwards by 100,000 b/d to 1.6 mb/d.

• OECD stocks continued to draw down in July, but still remain above OPEC’s target 5-year average stock level.

• US crude production/refining ramps up after Hurricane Harvey.

• OPEC output fell by 80,000 b/d to 32.76 mb/d in August on supply outages in Libya; OPEC compliance improves to 98%.

• Speculation intensifies that OPEC is mulling extending its production cuts beyond March 2018 and/or deepening them by an additional 1%.

Oil prices enjoy post-Harvey boost amid signs that the physical markets are tightening

By the standards of 2017, September has so far been a good month for oil prices. Both Brent and West Texas Intermediate (WTI) are up by 8% or more to the $56 and $50 per barrel (bbl) levels, respectively, amid signs that the physical markets are tightening. (Chart 1.) For Brent, the recovery has seen the marker recoup almost all its losses this year, as it trades near its January 2017-high of $57/bbl. Encouraging demand/supply fundamentals are driving the improvement in sentiment: global demand for crude posted one of its best quarters of growth for a long time in 2Q17; OPEC production trended downwards in August, along with an improvement in members’ compliance; and OECD crude and petroleum product stocks drew down in July for the fifth time in seven months.

Moreover, reflecting the tightening in fundamentals, the Brent forward curve has flipped into a structure known as backwardation, where contract prices for future delivery are below contract prices for immediate/spot delivery. (Chart 2.) This suggests that traders are beginning to view the near-term more bullishly than the medium-to-long term. This is the first instance of backwardation since oil prices were above $100/bbl in 2014.

Over in the US, the Texas/Gulf Coast energy industry looks to be finally re-emerging from the disruption caused by Hurricane Harvey in late August. Most of the state’s 30 or so refineries are back on line, proceeding to claw back 21% of the volume they had been processing before the hurricane hit. Crude production also appears to be ramping up again, climbing to 9.5 mb/d in the week-ending 15 September, after having fallen by as much as 8% (749,000 b/d) in the week immediately after the hurricane made landfall. (See Chart 4.) Crude and product stocks, however, moved in opposite directions in the aftermath of the hurricane, with crude inventories building and refined products, such as

Oil markets

Oil prices gain in September on signs the physical market is tightening

30

35

40

45

50

55

60

30

35

40

45

50

55

60

Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

ICE Brent (Front month)NYMEX West Texas Intermediate (WTI, Front month)

> Omar Al-NakibSenior Economist

+965 2259 5360, [email protected]

52

53

54

55

56

57

58

52

53

54

55

56

57

58

Nov-17 Nov-18 Nov-19 Nov-20 Nov-21 Nov-22

01-Sep-17

22-Sep-17

-1

0

1

2

3

4

5

6

7

-1

0

1

2

3

4

5

6

7




Chart 4: US crude production & oil rig counts

Source: US Energy Information Administration (EIA), Baker Hughes

Chart 5: World demand and supply growth(mb/d)

Source: IEA, NBK; * forecast assumes OPEC output at August levels

Chart 6: Balance of supply and demand (mb/d)

Source: IEA, NBK; * forecast assumes OPEC output at August levels

Chart 7: OECD commercial crude & product stocks(billion barrels)

Source: IEA

0.0

0.5

1.0

1.5

2.0

2.5

0.0

0.5

1.0

1.5

2.0

2.5

2016 2018 1Q17 3Q17 1Q18 3Q18

World demand growthWorld supply growth

gasoline and middle distillates (e.g. diesel), falling.

The resumption of demand from the US has been generally positive for crude prices. Brent also benefitted from the disruption, with the spread to WTI, the US marker, widening to a two-year high of $6.3/bbl on 8 September after European and non-US refineries, which process Brent, ran at higher rates to compensate for the products shortfall in their markets created by the cessation of imports from the US. (Chart 3.) Of course, burgeoning US crude supply, thanks to rising shale production, has also been putting downward pressure on WTI relative to Brent.

Market rebalancing is taking time, and likely to extend into 2019

The long-sought after rebalancing of supply and demand is proceeding, albeit slowly, the International Energy Agency (IEA) noted in its recent oil market report. The process has been helped along by stronger global crude demand growth in 2Q17 (+2.3 mb/d; +2.4% y/y), especially in OECD Europe and the US. (Chart 5.) Indeed, this has prompted the IEA to revise upwards its demand growth estimates for this year by 100,000 b/d to 1.6 mb/d. Next year, the agency estimates that crude demand will rise by a still robust 1.38 mb/d.

Also helping matters was a decline in global crude supplies in August because of scheduled maintenance and unplanned supply outages. The latter includes the aforementioned Hurricane Harvey as well as, for example, the disruption to crude flows from Libya, after armed protestors conspired to shut down the country’s largest oil field, Sharara.

The IEA puts the global supply pullback in August at around 720,000 b/d, which is the first fall in four months. However, in our view, this won’t be enough to prevent supply exceeding demand in 3Q17, by an estimated 100,000 b/d, and avert a build-up in global crude stocks after months of drawdowns.

Despite the negative impact of Hurricane Harvey on US crude production, non-OPEC supply growth is still expected to accelerate before year-end, possibly adding as much as 500,000 b/d in the fourth quarter. However, for 2017 on average, we expect there could be a supply shortfall of around 200,000 b/d. (Chart 6.) This would be the first year since 2013 that demand exceeds supply on an annual basis.

Though this will be comforting for OPEC as it works its way through its 15-month production cut agreement in a bid to accelerate the global stock drawdown, the group still has its work cut out. Nine months into the agreement period and OECD crude and petroleum product inventories, one of the key yardsticks by which OPEC measures its success, are still stubbornly high at 3.02 billion barrels (July). This is still more than 250 million barrels above OPEC’s target 5-year average level of around 2.75 billion barrels—even if total crude and product stocks have fallen in five of the last seven months. (Chart 7.)

Worryingly for OPEC, 2018 could see stocks accumulate rather than draw down if, as the IEA reckons, non-OPEC supplies, led by a resurgent US, increase at double 2017’s rate by an estimated 1.5 mb/d. This would almost certainly push back OPEC’s coveted stock drawdown target into 2019.

OPEC mulls extending production cut accord beyond March 2018 as compliance improves in August

It should come as no surprise then that there has been more chatter

-1.2

-0.8

-0.4

0.0

0.4

0.8

1.2

95

96

97

98

99

100

101

2016 2018 1Q17 3Q17 1Q18 3Q18

Balance/Implied stock change (RHS)Demand (LHS)Supply (LHS)

2.6

2.7

2.8

2.9

3.0

3.1

3.2

2.6

2.7

2.8

2.9

3.0

3.1

3.2

Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

5-yr Avg

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

8.0

8.2

8.4

8.6

8.8

9.0

9.2

9.4

9.6

9.8

10.0

Sep-14 Jun-15 Mar-16 Dec-16 Sep-17

Crude oil production (mb/d, LHS)

Oil rig count (no. of oil rigs, RHS)



Chart 8: OPEC crude oil production(mb/d)

Source: OPEC secondary sources

31.0

31.5

32.0

32.5

33.0

33.5

31.0

31.5

32.0

32.5

33.0

33.5

Aug-16 Nov-16 Feb-17 May-17 Aug-17

OPEC agreement output target of 31.75 mb/d

lately emanating from the OPEC camp about rolling over the production cut agreement beyond March 2018, possibly by more than three months. The group admitted in its recent oil report that it expects the demand for its crude (the “call”) in the first and second quarters of 2018 to be below current production levels. This suggests that deeper cuts may have to be considered, with Iraq recently raising the possibility that oil producers may need to curtail output by an additional 1%. It is not clear that there is an appetite for this let alone an intention to comply among OPEC and the ten non-OPEC signatories to the current agreement; Iraq, for one, is among that select band of producers that has yet to fully meet its obligations even under the existing agreement.

Indeed, shoring up non-compliers and bringing on board Libya and Nigeria, who are exempt from the production cuts altogether, will need to be OPEC’s first task. Compliance, using OPEC secondary source data, improved to 98% in August, up from 89% in July, as Saudi Arabia, Kuwait, Venezuela and several others pumped well below their quotas. Apart from Iraq, the UAE and Algeria remain the only OPEC members never to have achieved their targets.

OPEC’s aggregate output fell by 80,000 b/d to 32.76 mb/d in August from 32.84 mb/d in July. (Chart 8.) Supply is still more than 1 mb/d above the group’s stated target of 31.75 mb/d, however. Libya’s 110,000 b/d fall in crude production due to unrest played a big part in that. But August may only be a blip, and Libya’s output could resume its upward trajectory and push beyond the 1 mb/d it pumped in July—almost double (480,000 b/d) the country’s output last November, when the OPEC accords were inked.

As for the compliance rate among the Russian-led group of ten non-OPEC oil producers, this reached 100% for the very first time last month, the IEA stated.

Though the recent Joint Ministerial Monitoring Committee (JMMC) meeting in Vienna wrapped up over the weekend without any decision on extending or deepening the production cuts, markets will be especially sensitive to any announcements in favor of the latter. The next official OPEC meeting is scheduled for November, where it might be expected that some deliberations will take place. These may also include bringing Nigeria on board as a signatory; the country has been exempt from the production cut agreement, but recently indicated that it might accept restrictions once it achieves sustainable production of 1.8 mb/d. OPEC will be satisfied with that.



Chart 1: Credit growth(% y/y)

Source: Central Bank of Kuwait

Chart 2: Credit growth by component(% y/y)


Chart 3: Money supply growth(% y/y)


Credit was down in July, with growth slowing slightly to 3.5% year-on-year (y/y). The month saw a net decline of KD 143 million in credit. Most of the weakness in July was from the regular start-of-quarter drop in securities lending, though there was also some softness in other business sectors. By contrast, lending to the real estate sector and households was robust. Private deposits were down, while rates climbed.

Household lending was strong in July, with growth accelerating to 7.2% y/y. Personal facilities excluding securities lending added a net KD 119 million during the month, though this followed a flat month. The gains continued to come from installment loans, while consumer loans were off, contracting by 5.3% y/y.

Business credit (excluding nonbanks) dropped by KD 281 million, with growth falling to 1.8% y/y. The largest decline was in lending for the purchase of securities, which dropped by KD 211 million; this followed a similar increase the month before, part of a regular quarterly pattern. But there was also weakness elsewhere. The construction and oil & gas sectors saw noticeable declines, with the former contracting by 5.7% y/y. Most other sectors were flattish. As a result, growth in “productive” business sectors (excluding real estate and securities lending), which had been quite strong, slowed to 4.4% y/y, though this is also due to some base effects.

Meanwhile, real estate sector credit continued to recover in July. The sector, which had seen its borrowing contract by 3.6% during 2016, has recorded positive credit growth thus far in 2017. Year-to-date, lending to the sector has grown by an annualized 8.1%. The July gain, at KD 109 million, was the largest monthly gain thus far this year. This coincides with some stabilization in the real estate market.

Private deposits declined in July, though once again this was partially offset by a rise in government deposits. Private deposits fell by KD 252 million, most of it from a decline in foreign currency deposits. KD sight and savings deposits were also down, though gains in KD time deposits offset some of that. Money supply (M2) growth benefited from some base effects but remained subdued at 1.2% y/y. M1 growth was stronger at 7.1% y/y. Government deposits rose by KD 113 million, but growth slowed nonetheless to 6.4% y/y due to base effects.

The banking system’s liquid reserves, or “excess liquidity”, was steady in July at 7.5% of bank assets. Bank reserves (cash, deposits with the CBK, and CBK bonds) increased by KD 62 million to KD 4.7 billion (Chart 4). This coincided with KD 200 million in net issuance of public debt. This increased outstanding domestic public debt instruments (PDIs) to KD 4.17 billion, or an estimated 11% of GDP.

Domestic interest rates moved up in July in line with June’s increase of the overnight repo rate by 25 basis points. The 3-month interbank rate was up 9 basis points in July (Chart 5); rates have been mostly steady since. Customer deposit rates also moved up by 7-16 bps during the month. They are now up by 36-48 bps since December 2016.

Monetary developments

Credit growth at 3.5% in July, as month sees some weakness

0

1

2

3

4

5

6

7

8

9

10

0

1

2

3

4

5

6

7

8

9

10

Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

-25

-20

-15

-10

-5

0

5

10

15

20

-25

-20

-15

-10

-5

0

5

10

15

20


Household debtBusiness credit (all remaining)Non-bank financials

> Nemr KanafaniSenior Economist


> Chaker El MostafaEconomist


-10

-5

0

5

10

15

20

25

-10

-5

0

5

10

15

20

25


M1M2



Chart 4: Bank reserves(% of bank assets)


Chart 5: Interbank rates(%, 3-month rates, daily)


Chart 6: Exchange rates


0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

US Libor 3MKIBOR 3MSpread

0.31

0.34

0.36

0.39

0.41

0.27

0.28

0.29

0.30

0.31

Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

USD / KD (LHS)Euro / KD (RHS)

Table 1: Monetary indicators1-month 3-month 12-month

July-17 change change change

KD mn KD mn % KD mn % KD mn %

Total system liquidity (M2) 35,972 -530 -1.5 -430 -1.2 411 1.2

Currency in circulation 1,624 -278 -14.6 -56 -3.3 71 4.5

Private sector deposits 34,348 -252 -0.7 -374 -1.1 341 1.0

KD deposits 32,060 -79 -0.2 34 0.1 1,406 4.6

Sight deposits 8,343 -99 -1.2 -152 -1.8 588 7.6

Savings deposits 4,847 -26 -0.5 10 0.2 195 4.2

Time deposits & CDs 18,871 46 0.2 176 0.9 623 3.4

Foreign currency deposits 2,288 -173 -7.0 -408 -15.1 -1,065 -31.8


Table 2: Consolidated bank balance sheets1-month 3-month 12-month

July-17 change change change

KD mn KD mn % KD mn % KD mn %

Total bank assets 62,264 -324 -0.5 1,192 2.0 2,995 5.1

Core liquid assets 4,687 62 1.3 -154 -3.2 -322 -6.4

Cash and CBK deposits 689 -134 -16.2 -325 -32.1 -335 -32.7

CBK bonds 3,182 61 1.9 306 10.7 -233 -6.8

Time deposits with CBK 815 135 19.8 -135 -14.2 246 43.2

Public debt instruments 4,197 202 5.0 52 1.2 1,649 64.7

Interbank deposits 1,303 -430 -24.8 211 19.3 -292 -18.3

Credit facilities 35,399 -143 -0.4 525 1.5 1,196 3.5

Foreign assets 12,799 -7 -0.1 644 5.3 507 4.1

Other assets 3,880 -8 -0.2 -86 -2.2 257 7.1

Total bank liabilities 53,974 -348 -0.6 1,152 2.2 2,736 5.3

Total deposits 42,701 -544 -1.3 187 0.4 490 1.2

Private sector deposits 34,348 -252 -0.7 -374 -1.1 341 1.0

Government deposits 7,105 113 1.6 364 5.4 430 6.4

Interbank deposits 1,248 -406 -24.5 197 18.7 -280 -18.3

Foreign liabilities 5,200 54 1.0 617 13.4 1,574 43.4

Other liabilities 6,074 142 2.4 -37 -0.6 1,931 46.6

Shareholder equity 8,290 24 0.3 40 0.5 259 3.2




Consumer price inflation eased to a new multi-year low of 1.2% in August, mainly on the back of deflationary pressures from the housing component and weak food inflation. (Chart 1.) Core inflation, which excludes housing rent and food costs, remained more pronounced at 4.2% year-on-year (y/y), primarily due to the direct and indirect effects of the fuel price hikes imposed in September 2016. Nonetheless, these effects have largely subsided recently and are slated to witness a downward correction in the near- to medium-term due to base effects. In this setting, the overall inflation rate is expected to face some further downward pressure during the same period. If transportation costs are excluded, inflation held at a healthy 2.3% y/y thanks to ongoing inflationary gains in services excluding housing rent.

Inflation is now likely to average closer to 1.5% in 2017, noticeably lower than the 3.5% annual average recorded in 2016. While hikes in electricity and water tariffs on the apartment sector, which took effect in August, are projected to apply upward pressures in the months ahead, these pressures are likely to be partially offset by the deflationary rates in housing rent, soft food inflation and fading price growth in the transportation sector.

Housing rents remained in deflationary territory in August. Inflation in housing services – mostly comprised of housing rents and updated quarterly – slowed sharply from the second half of 2016 onwards, in line with softer activity in the housing market. Rental costs saw their first decline in years during 1Q17. In 2Q17, rents declined by a further -2.3% y/y. (Chart 2.)

Local food price inflation remained stubbornly weak on the back of softer inflation in global food prices. Local food prices declined by a mere -0.2% y/y in August as the pace of increase in international prices of commodity foods softened (Chart 3). According to the Commodity Research Bureau, global food price inflation reversed its upward trend in August and fell from an almost three-year high of 4.4% y/y in the preceding month, to a mere 0.5% y/y. This softness is projected to limit any significant increases in local food costs over the forthcoming months.

Inflation in the retail sector was mixed but still reflected some improvements in consumer demand as well as a weaker dinar. (Chart 4.) Inflation in clothing & footwear eased in August, but at 1.6% y/y it remained near multi-month highs. Inflation in “other goods & services” and furnishings & household maintenance remained relatively solid at 2.1% y/y and 3.5% y/y, respectively. The relatively more elevated inflation rates across these three major retail segments, mirror the improvements being witnessed in consumer demand and the recent depreciation in the local currency. The weaker dollar continues to weigh on the dinar’s trade-weighted index, which is currently down 3.5% year-to-date. Since a large proportion of the goods in the retail sector are imported, the weaker currency has propped up costs in the sector.

Inflation in services excluding housing has been healthy around 3-4% thus far in 2017. (Chart 5). Inflation in this component has been

Consumer price inflation

Inflation softens to 1.2% in August on deflationary housing costs

Chart 1: Consumer price inflation(% y/y)

Source: Central Statistical Bureau, NBK estimates

Chart 2: Inflation in housing services(% y/y)

Source: Central Statistical Bureau

Chart 3: Inflation in food & beverages(% y/y)


0

1

2

3

4

5

6

0

1

2

3

4

5

6

Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17

General indexCore (excl. food & bev.)CPI excl. food & housing

-30

-20

-10

0

10

20

30

40

-6

-4

-2

0

2

4

6

8


Kuwait prices (LHS)International prices (6-month lag, RHS)

-3

-2

-1

0

1

2

3

4

5

6

7

8

-3

-2

-1

0

1

2

3

4

5

6

7

8


> Dana Al-FakirEconomist






supported by double-digit inflationary gains in transportation costs. (Chart 6.) While it may edge lower in the near term as the impact of last year’s fuel price hikes fades, it is still expected to be supported somewhat by ongoing gains in inflation in recreation & culture.

Table 1: Consumer price inflation

(% change) Year-on-year Annual Avg.

July-17 Aug-17 2015 2016

Food & beverages 0.3 -0.2 3.0 1.7Tobacco & cigarettes 1.7 2.1 5.6 0.3Clothing & footwear 2.1 1.6 0.3 0.8Housing services* -2.3 -2.3 6.1 6.1Furnishing & household maintenance 3.4 3.5 3.7 2.3

Healthcare -0.7 -0.7 1.7 1.2Transportation 15.5 15.4 0.9 4.1Communication -1.1 -1.3 0.6 2.0Recreation & culture 3.4 4.2 -0.3 -1.8Education 3.6 3.6 4.8 3.6Restaurants & hotels 2.6 2.6 6.3 6.9Other goods & services 2.2 2.1 2.4 0.8

Core** 1.5 1.4 3.8 3.9

Durable goods 4.5 4.3 2.4 2.5Semi-durable goods 1.9 1.4 1.4 1.1Non-durable goods 2.7 2.5 0.0 0.4Services -0.5 -0.4 5.4 4.9

Services ex-housing 2.1 3.3 3.9 2.4

General Index 1.3 1.2 3.7 3.5


* Updated once every quarter

** Excludes food & beverages; estimated by NBK

Chart 4: Inflation in other sectors(% y/y)


Chart 5: Inflation in services ex. housing(% y/y)


Chart 6: Inflation in transportation(% y/y)


-4

-3

-2

-1

0

1

2

3

4

5

6

7

-4

-3

-2

-1

0

1

2

3

4

5

6

7


Clothing & footwearFurnishings & household maintenanceOther goods & services

-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17

Services ex-housing Services

-2

0

2

4

6

8

10

12

14

16

-2

0

2

4

6

8

10

12

14

16




The consumer sector appeared to stabilize and show some early signs of recovery in 2017, following a noticeable slowdown in 2016. Lower oil prices and some fiscal adjustment negatively impacted the consumer sector in 2016. Although we are seeing stabilization and some recovery in card spending, consumer confidence and household credit, most consumer indicators remain noticeably weak in 2017 and far below the double-digit growth of previous years. Nonetheless, employment remains healthy, providing support to the sector, despite the moderation in government hiring.

Consumer spending growth bounced back in 2Q17, but remained below the 2015 pace. Spending growth on credit and debit cards at point-of-sale machines improved to 9.1% year-on-year (y/y) during the second quarter, up from 4.3% y/y in 2Q16. Growth in total spending including ATM withdrawals, which has been slower, has also been improving, accelerating to 4.9% y/y in 2Q17 (Chart 2).

Despite the improvement, durable goods have yet to show signs of stabilization. The auto market has been struggling and sales are estimated to have retreated by 20-25% in 2016 and a further 12% during the first half of 2017. Noticeable weakness in durable goods purchases continued to be reflected in the Ara consumer confidence index. The durable goods sub-index soared in July and the 3-month average was still down 10% y/y. (Chart 3).

Nonetheless, there has been steady albeit slow improvement in consumer confidence over the last 12 months. Despite some weakness in the beginning of the year, the Ara general index has managed to remain above the 100 point benchmark since May 2017. It rose to 106 in July. The index had been on a downward trend for four years and fell more rapidly in 2016 after the government hiked fuel prices. Despite the improvement in 2017, the 12-month average remained down 6% y/y.

The slow improvement in consumer confidence appears to be helping stabilize household loan growth in 2017. In fact, the growth in household lending, which had also slowed in 2016, has steadied in 2017. Growth in personal facilities excluding credit for the purchase of securities has averaged 6.8% y/y in 1H17, compared to an average of 11.8% growth in 1H16. (Chart 1). The average monthly gain in such loans rose to KD 59 million so far in 2017, compared to a KD 54 million average during the first half of 2016.

Employment growth among Kuwaitis, which has held up quite well in recent quarters, appeared to moderate in 1Q17. The number of new civilian jobs among Kuwaitis dipped below 3,000 for the first time in three years, according to the latest figures from the Public Institute for Social Security. With private and oil sector jobs steady or improving, the weakness came from the public sector, which only added around 8,900 jobs during FY16/17, 17% lower than the previous year. The sector saw employment growth slip to 2% y/y, its slowest pace in over seven years. Meanwhile, non-Kuwaiti employment growth retreated to below 4% y/y during 1H17 after holding up above 5% for over two years.

Consumer sector

Early signs of recovery of the consumer sector

Chart 1: Household debt growth(% y/y)


Chart 2: Card transactions(% y/y)


Chart 3: Consumer confidence index(index)

Source: Ara Research & Consultancy

0

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

16

18

20

Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

80

90

100

110

120

130

140

80

90

100

110

120

130

140


Actual12m average

-5

0

5

10

15

20

25

-5

0

5

10

15

20

25

2Q13 2Q14 2Q15 2Q16 2Q17

Point-of-salePoint-of-sale & ATM

> Hiba KoraytemSenior Economist






The consumer sector is likely to recover further in 2017. The recent decision to implement more moderate hikes in utility prices and the slow recovery in the real estate market activity, combined with a government commitment to limit its spending cuts, should continue to provide decent support to the consumer sector.

Chart 4: Kuwaiti civilian job entrants(thousands)

Source: Public Institute For Social Security (PIFSS), NBK estimates

Chart 5: Expatriate population & employment(% y/y)

Source: Public Authority for Civil Information

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

1Q13 1Q14 1Q15 1Q16 1Q17

Quarterly12m average

-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8

Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

PopulationEmployment



Chart 1: Monthly real estate sales(KD million)

Source: Ministry of Justice

Chart 2: Residential real estate sales

Source: Ministry of Justice, NBK estimates

Chart 3: Residential real estate price indices(index, 3-month moving average, 2010=100)


Real estate activity remained relatively stable in August. Seasonality pulled the monthly sales figure down slightly to KD 154.5 million. Sales across all sectors totaled KD 1.5 billion year-to-date (ytd), down 5.4% from the same period last year. The residential sector was particularly strong in 2017, compensating for the subdued activity in the investment and commercial sectors. Prices continue to stabilize, though they remain down 5%-10% year-on-year (y/y).

2017 witnessed the resurgence of investor interest in the residential sector, following weaker demand since end-2015. Year-to-date, sector sales improved by 23% y/y. Over the last eight months, 1,134 homes were sold at an average of 173 home per month, 24% higher than during the same period last year. Similarly, regained interest in residential land has been noticed in 2017, with 924 plots sold so far; however, it remains substantially lower than the 1,432 plots sold during the first 8 months of 2015.

Despite this improvement, August residential sector sales were soft, recording the lowest monthly sales in almost a year. Since the spike in May 2017, sales have trended down to reach KD 67.2 million in August, which was down by 6.4% y/y. 217 residential transactions were recorded in August, more than two thirds of which were homes, while the rest were plots. Home sale activity was prominent in the Ahmadi governorate, totaling 49 transactions, as well as in the Jahra governorate that numbered 34 in total.

More robust demand this year continued to see the NBK residential price index firm up. This resulted in a stronger NBK residential home price index that reached 155.1 in August, the highest so far in 2017. The NBK residential land price index registered its first monthly increase in six months from 164.8 in July to 166.7 in August, easing its pace of decline to 8.6% y/y. (Chart 3).

Activity in the investment sector, which has not seen a similar improvement in 2017, was particularly weak in August, with sales at their lowest since 2010. Sector sales have been anemic since early 2016. August was no different, with sector sales of KD 34.8 million, down 35% y/y and transactions down 10.5% y/y. This trend has coincided with rising apartment vacancies. According to the Public Authority of Civil Information (PACI), the number of vacant apartments has risen since June 2015. Rental rates have also suffered, with the housing component in the CPI registering the first decline of 2.3% y/y in years through June 2017. The investment sector may continue to face some challenging months ahead as residents try to adjust to the utility price hike that went into effect on 22 August, albeit smaller than what was initially announced.

The slow activity in the sector and the rise in vacant apartments continue to exercise negative pressure on investment property prices. The NBK investment building price retreated to 179.3 in August down 5.1% y/y (Chart 5). The price index has settled at levels last seen at the end of 2013.

Commercial property sales witnessed their best performance in August, relative to the preceding two months, and had lent support

Real estate

Seasonality dampened real estate activity in August, though prices held firm

0

50

100

150

200

250

300

350

400

450

0

50

100

150

200

250

300

350

400

450

Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17

Inv Property Sales

Resid Property Sales

Comm Property Sales

0

50

100

150

200

250

0

50

100

150

200

250


Sales (KD mn, LHS)KD mn, monthly, 3MMA (RHS)

> Fatema AkashahEconomist


> Hiba KoraytemSenior Economist


80

100

120

140

160

180

200

220

80

100

120

140

160

180

200

220


Residential HomeResidential Land



to the August real estate sector sales as a whole. Fifteen transactions took place in August, the largest being a commercial building in Khaitan for KD 15 million, followed by two buildings in Salmiya worth KD 11.7 million and KD 8.8 million, respectively. (Chart 6).

Table 1: Real estate sales Monthly average 2017 Aug 2017

2015 2016 June July Aug %m/m %y/y

Sales (KD mn) 253.5 195 163.6 161.5 154.5 -4.3 17.8

Residential property 113.4 79 102.0 90.3 67.2 -25.5 -6.4

Investment property 102.2 68 50.8 57.5 34.8 -39.4 -35.3

Commercial property 37.9 48 10.9 13.8 52.5 281.0 846.8

Number of transactions 452 354 386 372 300 -19.4 0.0

Residential property 323 237 308 268 217 -19.0 -1.4

Investment property 120 108 74 100 68 -32.0 -10.5

Commercial property 8 8 4 4 15 275.0 275.0

Transaction size (KD ‘000) 566 547 423.9 434.2 515.1 18.6 17.8

Residential property 352 332 331.2 336.8 309.7 -8.0 -5.1

Investment property 882 646 686.1 574.9 512.0 -10.9 -27.7

Commercial property 5,185 5,204 2,713 3,445 3500 1.6 152.5

Source: Ministry of JusticeNote: Our real estate indexes database comprises 65,000 transactions. Each index combines monthly average prices (per sqm when possible) in select, more active, areas of Kuwait; it is then adjusted for volatility. The indexes are based in 2010, i.e. 2010 price index equals 100. The indexes are not adjusted for seasonality nor for number of business days. They also do not cover the commercial sector.

Chart 4: Investment real estate sales


Chart 5: Investment building price index(index, 3-month moving average, 2010=100)


Chart 6: Commercial real estate sales


0

50

100

150

200

250

0

50

100

150

200

250



90

110

130

150

170

190

210

230

250

90

110

130

150

170

190

210

230

250


0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160





Despite its inclusion in FTSE Russell’s secondary emerging market index, Boursa Kuwait finished September little changed on profit taking by investors ahead of the decision. The market gained a small KD 0.4 billion in capitalization during the month, to close at KD 30 billion. Nevertheless, the value-weighted index was up 8% in 3Q17 and 13% year-to-date, much of it in anticipation of the FTSE decision. Meanwhile, volumes shook off the summer lull to register a 4-month high in September.

On the month, the price index retreated by 3.1% and the value-weighted index was flat. The sectors posted mixed results, held back by weakness in the insurance, oil & gas, and consumer sectors. The delisting of a consumer services company saw that sector’s index drop by 6%. Meanwhile, trading volumes jumped. The average daily traded value rose to KD 25.1 million in September as investors took advantage of the FTSE trade. Though healthy, activity remains below levels seen earlier in the year.

Kuwait’s upgrade to emerging market status by FTSE Russell will be a boon to an already outperforming market. Analysts are predicting passive inflows of $600-$800 million as foreign investors reallocate to track the Boursa Kuwait index. Flows were already bolstered when consideration began in 1H17: foreign and GCC inflows are estimated to have totalled as much as KD 106 million ($351 million) year-to-date. Foreign buying in September accounted for 17.2 % of trading volumes, up from August, but continued to edge lower to a 3-month moving average of 16.6%.

Stock market

Boursa Kuwait steady in September despite FTSE upgrade

Chart 1: Boursa Kuwait

Source: Thomson Reuters Datastream, Boursa Kuwait

Chart 2: Regional markets(rebased indexes)


Chart 3: GCC markets & oil


5000

5500

6000

6500

7000

7500

8000

0

10

20

30

40

50

60


Value of traded shares (KD mn, LHS)KSE price index (RHS)

800

900

1000

1100

1200

1300

1400

1500

800

900

1000

1100

1200

1300

1400

1500

Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17

MSCI KuwaitMSCI GCCMSCI EmergingMSCI World

20

40

60

80

100

120

20

40

60

80

100

120

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Brent Price ($/barre, LHSl)MSCI GCC Total Return Index (RHS)

> Chaker El MostafaEconomist






Table 1: Boursa Kuwait performance by sector, September 2017Change %

Price WeightedPrice index Weighted index

Market % of Trading activity Price to

index index cap (KD mn) Market (daily avg.) earnings*

29-Sept 29-Sept m/m YTD m/m YTD 29-Sept mn shares mn KD 29-Sept

Total market 6680 431 -3.1 16.2 0.0 13.3 30,022 100.0 122.4 25.1 16.2

Banks 956 506 -1.6 14.2 0.4 17.6 14,629 48.7 29.0 10.9 15.5

Basic materials 1310 769 -0.1 30.4 0.6 36.7 837 2.8 0.8 0.4 24.5

Consumer goods 1051 763 -3.0 -6.6 -1.5 -19.2 1,169 3.9 0.4 0.1 17.3

Consumer services 933 488 -12.2 0.9 -5.8 7.8 744 2.5 0.6 0.1 46.6

Financial services 701 437 1.3 17.4 0.8 1.5 2,672 8.9 45.0 4.4 19.4

Healthcare 1511 623 0.0 21.4 0.0 5.1 237 0.8 0.0 0.0 8.0

Industrials 1791 761 -4.7 33.2 -0.6 29.5 3,573 11.9 5.8 2.5 16.1

Insurance 1116 642 -4.9 12.3 -6.6 7.1 372 1.2 0.1 0.0 11.5

Oil & gas 985 289 -4.5 26.2 -5.0 7.5 250 0.8 0.9 0.0 …

Real estate 948 565 -2.9 9.0 -0.3 2.2 2,236 7.4 29.9 2.5 18.9

Technology 573 307 -5.6 -5.6 -3.1 -4.5 43 0.1 0.2 0.0 …

Telecommunications 614 374 -0.6 -3.6 1.6 13.2 3,260 10.9 9.7 4.1 13.5

Parallel 1130 385 -1.5 2.7 -0.1 -2.1 … … … … …

Source: Boursa Kuwait, Thomson Reuters Datastream* PE is calculated using market cap as of month close and latest 12 months trailing earnings.

Chart 4: Market indexes(rebased indexes)

Source: Thomson Reuters Datastream, Boursa Kuwait

Chart 5: Foreign buyers(% y/y, 3mma)

Source: Boursa Kuwait

95

100

105

110

115

120

125

130

135

95

100

105

110

115

120

125

130

135


Price index Value weighted

8

10

12

14

16

18

20

22

8

10

12

14

16

18

20

22

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Head Office

KuwaitNational Bank of Kuwait SAKPAbdullah Al-Ahmed StreetP.O. Box 95, Safat 13001Kuwait City, KuwaitTel: +965 2242 2011Fax: +965 2259 5804Telex: 22043-22451 NATBANK

www.nbk.com

International Network BahrainNational Bank of Kuwait SAKPZain BranchZain Tower, Building 401, Road 2806, Seef Area 428, P.O.Box 5290, Manama, Kingdom of BahrainTel: +973 17 155 555Fax: +973 17 104 860

National Bank of Kuwait SAKPBahrain Head OfficeGB Corp TowerBlock 346, Road 4626Building 1411P.O. Box 5290, ManamaKingdom of BahrainTel: +973 17 155 555Fax: +973 17 104 860

JordanNational Bank of Kuwait SAKPAmman BranchShareef Abdul Hamid Sharaf StP.O. Box 941297Shmeisani, Amman 11194JordanTel: +962 6 580 0400Fax: +962 6 580 0441

Saudi ArabiaNational Bank of Kuwait SAKPJeddah BranchAl Khalidiah District, Al Mukmal Tower, Jeddah P.O Box: 15385 Jeddah 21444Kingdom of Saudi ArabiaTel: +966 2 603 6300Fax: +966 2 603 6318

LebanonNational Bank of Kuwait(Lebanon) SALBAC BuildingJustinian Street, SanayehP.O. Box 11-5727, Riyad El SolhBeirut 1107 2200, LebanonTel: +961 1 759700Fax: +961 1 747866

IraqCredit Bank of IraqStreet 9, Building 187Sadoon Street, District 102P.O. Box 3420Baghdad, IraqTel: +964 1 7182198/7191944 +964 1 7188406/7171673Fax: +964 1 7170156

EgyptNational Bank of Kuwait - EgyptPlot 155, City Center, First Sector 5th Settlement, New Cairo EgyptTel: + 20 2 26149300Fax: + 20 2 26133978

United Arab EmiratesNational Bank of Kuwait SAKPDubai BranchLatifa Tower, Sheikh Zayed RoadP.O. Box. 9293, Dubai UAETel: +971 4 3161600Fax: +971 4 3888588

National Bank of Kuwait SAKPAbu Dhabi BranchSheikh Rashed Bin Saeed Al Maktoom (Old Airport Road)P.O. Box 113567Abu Dhabi, U.A.ETel: +971 2 4199555Fax: +971 2 2222477

United States of AmericaNational Bank of Kuwait SAKPNew York Branch, 299 Park AvenueNew York, NY 10171, USATel: +1 212 303 9800Fax: +1 212 319 8269 United KingdomNational Bank of Kuwait(International) PlcHead Office, 13 George StreetLondon W1U 3QJ, UKTel: +44 20 7224 2277Fax: +44 20 7224 2101

National Bank of Kuwait(International) PlcPortman Square Branch7 Portman SquareLondon W1H 6NA, UKTel: +44 20 7224 2277Fax: +44 20 7486 3877

FranceNational Bank of Kuwait(International) PlcParis Branch90 Avenue des Champs-Elysees75008 Paris, FranceTel: +33 1 5659 8600 Fax: +33 1 5659 8623

SingaporeNational Bank of Kuwait SAKPSingapore Branch9 Raffles Place # 44-01Republic PlazaSingapore 048619Tel: +65 6222 5348Fax: +65 6224 5438

ChinaNational Bank of Kuwait SAKPShanghai Representative OfficeSuite 1003, 10th Floor, Azia Center1233 Lujiazui Ring RoadShanghai 200120, ChinaTel: +86 21 6888 1092Fax: +86 21 5047 1011

NBK Capital

Kuwait NBK Capital 38th Floor, Arraya II Building, Block 6, Shuhada’a Street, SharqP.O. Box 4950, Safat 13050KuwaitTel: +965 2224 6900Fax: +965 2224 6904 / 5 United Arab EmiratesNBK Capital Limited - UAEPrecinct Building 3, Office 404Dubai International Financial CenterSheikh Zayed RoadP.O. Box 506506, DubaiUnited Arab EmiratesTel: +971 4 365 2800Fax: +971 4 365 2805

Associates

TurkeyTurkish BankValikonagl CAD. 7Nisantasi P.O. Box 34371,Istanbul, TurkeyTel: +90 212 373 6373Fax: +90 212 225 0353

© Copyright Notice. Kuwait Economic Brief is a publication of National Bank of Kuwait. No part of this publication may be reproduced or duplicated without the prior consent of NBK.

While every care has been taken in preparing this publication, National Bank of Kuwait accepts no liability whatsoever for any direct or consequential losses arising from its use. Kuwait Economic Brief is distributed on a complimentary and discretionary basis to NBK clients and associates. This report and previous issues can be found in the “Reports” section of the National Bank of Kuwait’s web site. Please visit our web site, www.nbk.com, for other bank publications. For further information please contact NBK Economic Research at:Tel: (965) 2259 5500Fax: (965) 2224 6973Email: [email protected]

Documents

Kuwait Economic Brief - Amazon S3 · 2017-10-09 · Kuwait Economic Brief October 2017 Government spending accelerates in November...Credit growth to close 2012 at 5.5%...KD 12 billion