Kuwait is a small country with one of the world's largest proven oil reserves and one of the richest countries. The key role of the oil sector determines the dependence of the country's economy on the global situation in the hydrocarbon market, as well as OPEC+ decisions on production volumes.
Declining oil prices tend to cause a recession in the Kuwaiti economy, which was observed in 2017, 2019 and especially in 2020, when as a result of the COVID-19 pandemic and the subsequent decline in demand for hydrocarbons, the country's real GDP decreased by 8.9%. The restoration of favorable market conditions in 2021 and an increase in oil prices in the following year allowed Kuwait to demonstrate a record growth rate of 8.9% in 2022. Economic diversification and the development of non-oil sectors are among the priorities of the Government of the country.
In 2023, due to a significant decrease in hydrocarbon prices, the dynamics of economic indicators in Kuwait slowed down. The country's real GDP decreased by 0.6% against the background of the introduction by OPEC+ participants of restrictions on oil production in order to restore the balance of supply and demand in the oil and gas market.
Despite the expected low level of supply and demand in the hydrocarbon market, Kuwait's real GDP is projected to increase by 3.6% in 2024. It is expected that the Government's efforts to diversify the economy will contribute to achieving this indicator. The non-oil sector is actively developing in the country, which demonstrated stable growth rates in 2021 and 2022 at the level of 3.4% and 4.0%, respectively. Reducing dependence on the oil and gas sector will allow Kuwait to find more stable sources of growth for sustainable development in the long term.
Similar processes are observed in other oil-producing countries of the Persian Gulf. At the same time, if a favorable price environment is established in the global hydrocarbon market, Kuwait's economic growth will also be facilitated by increasing oil production capacities, in particular, in connection with the commissioning of the Al-Zour complex, one of the largest oil refineries in the Middle East.
Kuwait's GDP by PPP per capita showed a decrease in 2019 (-2.0% by 2018) and 2020, when, under the influence of the COVID-19 pandemic, the indicator decreased by 5.6% compared to 2019. In 2021-2022, there was a steady recovery of the indicator against the background of weakening quarantine restrictions, increased business activity, and government support businesses and the public, as well as the growth of income from the oil sector. However, due to the unfavorable price environment in the global oil and gas market in 2023, the indicator increased by 1.0% compared to the record level for the last five years in 2022 (51.2 thousand US dollars). As a result, GDP by PPP per capita in Kuwait in 2023 is estimated at 51.8 thousand US dollars, and, according to forecasts, by 2028 it will reach 59.9 thousand US dollars.
Inflationary pressures in Kuwait increased throughout 2018-2022, reaching their highest level in 2022, when the inflation rate was 4.0%. The factors that led to a sharp spike in inflation worldwide in 2022 affected the Persian Gulf countries to a lesser extent, and consumer price growth in the region remained well below the global average.
Despite this circumstance, the central banks of the monarchies of the Arabian Peninsula have significantly tightened their monetary policy, since the currencies of these countries are pegged to the US dollar (with the exception of Kuwait - the Kuwaiti dinar is pegged to a basket of currencies, which, however, is also dominated by the US dollar). So, in July 2023, the Central Bank of Kuwait increased the key rate by 25 bps to 4.25% (by 275 bps in total since March 2022), which corresponds to an increase in the US Federal Reserve rate. Other countries of the Persian Gulf have done the same.
In 2023, the inflation rate was 3.4%, which was made possible by government subsidies for food and energy, as well as a more stringent monetary policy of the Central Bank of Kuwait. According to forecasts, in the medium term, inflation will continue to decline, following the global trend towards stabilization of consumer prices after growth in 2022.
