KUWAIT: A range of indicators painted a picture of improving Kuwait’s non-oil sector conditions in Q4 2024. The PMI activity gauge signaled firm expansion, project awards and real estate sales both hit multi-year highs, while bank credit growth closed the year at a solid rate – well up on a year earlier. On the downside, bank card transaction data show that consumer spending eased further to minimal rates in Q3, despite a potential boost from Kuwait’s hosting of the Arabian Gulf Cup football tournament in December.

But this aside, broadly improving indicators painted an upbeat picture and contrasted preliminary data showing that non-oil GDP growth had turned negative in Q3.

On policy, government reform efforts picked up, with more than 30 draft laws reportedly being considered, including on liquidity management, mortgage financing and privatization. It has also moved ahead with fiscal reforms, with implementation of the corporate tax on multinationals in January while flagging an increase in fees for government services. These are the first major revenue-raising measures introduced in years.

Non-oil GDP

Preliminary official data show that non-oil GDP fell by 2.5 percent y/y in Q3, declining from a downwardly revised 2.5 percent (4.2 percent previously) in Q2. The decline in non-oil activity was broad-based but especially marked in manufacturing (-10.8 percent). Meanwhile, growth in the oil sector remained negative in Q3 for the sixth consecutive quarter (-5.3 percent y/y), constrained by the extension in Q3 of OPEC+ voluntary cuts. Total GDP shrank by 3.9 percent in Q3.

The release also came with significant revisions to the historical data: Kuwait’s non-oil economy is now shown to have escaped recession in both 2022 and 2023, though growth was downgraded for 2021. Large non-oil sectors including ‘public administration & defense’, ‘electricity, gas & water’, and construction, were revised higher, pushing non-oil growth to 1.6 percent (from -0.1 percent previously) in 2022 and to 1 percent (from -2.9 percent) in 2023.

PMI signals solid non-oil activity growth in Q4

The news from the more up-to-date PMI gauge of non-oil private sector activity, however, is more upbeat. The index strengthened in Q4, with the PMI averaging 54.2, up from Q3’s reading of 50.5. Non-oil activity was strong throughout the quarter as the output, new orders and new export orders subcategories all posted their highest average readings on record. Meanwhile, employment growth was unchanged and staffing costs increased quarter-on-quarter, though firms appeared not to pass on the higher costs to consumers. Business optimism about the near-term outlook remained strong.

Kuwait oil price up

Kuwait Export Crude closed Q4 2024 up 2 percent q/q to $75.8/bbl, buoyed by OPEC’s December decision to extend voluntary output cuts to end-March 2025 and return supply at a slower pace thereafter. Bullish tailwinds from OPEC’s repeated voluntary cut extensions failed to offset the bearishness associated with weak Chinese oil demand growth especially and robust non-OPEC supply gains. Due to OPEC+ cuts, Kuwait’s crude output in 2024 was the lowest since 2010at 2.411 mb/d, though should begin rising in April at the rate of 7 kb/d per month (+63 kb/d by year-end).

Govt steps up pace of reform

As 2024 drew to a close and heading into 2025, the government increasingly signaled its intention to push ahead with initiatives and measures designed to improve the revenue and expenditure sides of the public ledger as well as general liquidity management. Revenue steps delivered or approved include higher traffic fines and fees for government services as well as a new corporate income tax in accordance with the OECD base erosion and profit shifting framework. The latter, which went into law in January following publication in the official gazette, will see a 15 percent top-up levy introduced on all foreign and domestic multinational businesses operating in Kuwait that generate profits of EUR750 million or more. More detailed by-laws are expected in June, but the Ministry of Finance estimates that the new tax will generate an additional KD 250 million in revenues for the public purse – easily exceeding existing tax revenues of KD 160 million (FY24/25 budget). Other initiatives being discussed include the VAT and excise tax laws, in line with the GCC unified tax framework, an amended privatization law and a law for the development of the Northern Economic Zone. Other significant draft laws reportedly in the final stages include the public debt and the regulation of FGF withdrawal law.

Consumer spending growth

Consumer spending activity in Q4 2024, proxied by card transaction data (by value) published by the Central Bank of Kuwait, continued its slowing growth trajectory more than three years after peaking in the aftermath of the COVID-19 pandemic. Growth in card spending in Kuwait eased to a post-pandemic low of 0.8 percent y/y (KD 11.0 billion) from 4.6 percent in Q3.

Running counter to seasonal norms, spending in Q4 came in lower than in Q3 (-0.6 percent q/q), which is the first time that has happened since 2015. That said, we think the bulk of the spending growth slowdown has run its course, with 2025 potentially stable or even showing a modest increase in line with improving economic activity prospects, steady employment, moderating inflation and potentially lower interest rates.

Real estate sales tick up

Real estate sales in Q4 reached their highest since Q2 2022 at KD 1,082 million (28 percent q/q; 40 percent y/y), hinting at an accelerated pace of market recovery from the softness recorded in 2023. By segment, the improvement was across-the-board but led by the investment segment (36 percent q/q), followed by the commercial sector (32 percent) then residential (19 percent). Total sales reached KD 3.5 billion in 2024, up 23 percent on the previous year’s figure but still below 2021-2022 levels.

Meanwhile, real estate prices (excluding the commercial segment), according to the NBK index of prices, rose in Q4 by 3.8 percent q/q, logging their highest increase since Q322. Price rises were strongest in the investment segment, which admittedly have been volatile through the year, while residential prices saw a quarterly increase of 1.2 percent in Q4, but remain notably down in year-on-year terms. Looking ahead, and given recent signs of momentum, real estate activity should see further improvement in 2025, in line with broad trends in the non-oil economy, potentially lower interest rates and the prospective approval of the government’s mortgage law.

Project activity accelerates in Q4

Project awards jumped in Q4 2024 to KD 1.2 billion, which was the best quarterly performance since Q2 2016. The construction sector accounted for half of all awards, with the Public Authority of Housing Welfare making progress on various housing projects including the affordable housing project in Al-Nayeem area and the power & water sector notching up KD 370 million in contract awards. Kuwait Oil Company’s project to drill 141 wells helped push awards in the oil and gas sector. For 2024 as a whole, KD 2.7 billion worth of projects were awarded, a 44 percent increase on 2023 and the highest figure since 2017. Activity was boosted by the power & water and construction sectors, as the government pushed ahead with residential housing and strengthening the domestic electricity grid.

The near-term outlook remains constructive, especially with the government expected to re-emphasize in its forthcoming economic agenda speedier implementation of Vision 2035 infrastructure development goals. MEED Projects sees KD 7.8 billion worth of projects coming through the pipeline in 2025, 60 percent of which are power & water-related. Prospects for the Al-Zour North IWPP Phases 2&3 (KD 1.2 billion) look brighter as the project enters the bid evaluation phase. Meanwhile, the oil and gas sector could see a rise in activity, with the tender for KNPC’s Al-Mutlaa project (KD 225 million) scheduled to be awarded in Q1 2025 and as KOC pushes to raise oil output capacity to 3.2 mb/d.

Inflation slows

Consumer price inflation gained slightly in December, rising to 2.5 percent y/y (+0.4 percent m/m) from 2.4 percent the previous month on an uptick in food and housing rental price inflation especially. Core inflation trended down to a more-than-two-year low of 2.6 percent.

Nevertheless, the broad trend in 2024, as in 2023, was deceleration, with headline inflation slowing to an average of 2.9 percent from 3.6 percent the year before. We expect inflation to average lower in 2025 amid lower imported inflation, the absence of stimulative fiscal policy and still relatively tight monetary conditions.

Improving business credit growth

Domestic credit growth strengthened to 3.7 percent in 2024, more than double the 1.7 percent increase recorded in 2023. The rebound in business credit in 2024 has been stronger than household credit, standing at 4 percent in 2024 up from 0.8 percent in 2023. The construction and trade sectors remained in the lead, in line with 2022-2023, up 7.9 percent and 7.3 percent, respectively. The recovery in household credit continued, and while the yearly growth stood at 3 percent (versus 1.5 percent in 2023), annualized growth over the past six months is a stronger 4.2 percent. Looking ahead, credit growth should witness a further slight improvement in 2025, benefiting from the ongoing pick-up in project awards and any incremental drop in policy rates.

Meanwhile, resident deposits finished the year growing by 3.6 percent, similar to the 3.9 percent recorded in 2023. However, the growth in private-sector deposits rebounded to 4.5 percent in 2024 from 1.1 percent in 2023. In contrast, the increase in government deposits decelerated sharply to 5.7 percent in 2024 after a 37 percent surge in 2023. Within private-sector KD deposits, CASA decreased by a limited 1.1 percent in 2024 while time deposits increased by 8.5 percent, a much narrower differential compared with 2023.