Private Business Sector Pivotal to Building an Economy With Strong Resilience
A Peek into the Global Economic Outlook and its Impact on Kuwait
The global economic landscape is shrouded in uncertainty, with international financial institutions like the International Monetary Fund (IMF) and the World Bank painting a sluggish short-term picture. The IMF recently downgraded its global growth forecasts for 2025 and 2026, citing escalating trade tensions between the United States and China as a significant factor.
In its April 'World Economic Outlook', the IMF predicted a decrease in global growth by 0.5 percentage points to 2.8 percent in 2025, compared to the initially forecasted 3.3 percent. Similarly, global growth in 2026 is predicted to drop by 0.3 percentage points to 3 percent. The Fund attributes this decline to trade tariffs and policy shifts in major economies, which are redefining the global trade system and fueling economic uncertainty.
While the World Bank recognizes that Kuwait is less directly impacted by US trade tariffs, it warns of the potential harm from the ongoing tariff skirmish between the US and China, which has caused a sharp drop in global oil prices, negatively affecting hydrocarbon-reliant economies like Kuwait. A prolonged decline in oil prices could put a strain on Kuwait's resilience and fiscal revenues.
Apart from the drop in oil prices, reduced imports from major global partners like the European Union (EU) and China due to economic uncertainty could also exert pressure on Kuwait's fiscal balances. In 2024, Chinese imports from Kuwait totaled $11.5 billion, while EU imports exceeded $7.6 billion.
Latest statistics from Kuwait's Central Statistical Bureau indicate a projected GDP decline by 3.3 percent in 2024, translating to a KD1.7 billion drop in total GDP, from KD50.8 billion in 2023 to KD49.1 billion in 2024. This contraction is largely attributed to dropping oil prices and compliance with extended periods of oil production cuts, as mandated by the Organization of Petroleum Exporting Countries and its non-OPEC allies (OPEC+).
However, the National Bank of Kuwait (NBK), the country's premier private lender, offers a somewhat optimistic outlook. In its recent economic update on the oil market, the NBK concurs that the current dip in oil prices is driven by excess oil supplies and weak demand caused by the ongoing trade tussle between the US and China.
Yet, the bank points out that OPEC+ recently unveiled compensatory cuts for the eight exporters that exceeded their quota during the January 2024 to March 2025 period. These cutbacks, expected to average 25,000 barrels per day for Kuwait until September 2025, could further squeeze Kuwaiti oil revenues.
While these cuts could tighten the market and potentially stabilize prices, they could also limit oil production, furthering the strain on the country's economy. However, if fully adhered to, these compensatory production cuts could offset the expected monthly decline in production cuts from OPEC+ and create a tighter rather than a looser market.
On a regional scale, the World Bank shares the IMF's more pessimistic views on the global economy, particularly for the Middle East and North Africa (MENA) region. In its latest economic update on the MENA region, the World Bank forecasts growth to reach a modest 1.9 percent in 2024, with a moderate rise to 2.6 percent in 2025. This growth uptick in 2025 is predicated upon OPEC+ unwinding its production cuts and consumer consumption increasing as local inflation eases.
In its report, titled 'Shifting Gears: The Private Sector as an Engine of Growth in the Middle East and North Africa', the World Bank emphasizes the critical role of the private sector in fostering regional growth, innovation, and job creation. It highlights that a dynamic private sector can compensate for the absence of domestic sources of growth, focusing on management practices and promoting female entrepreneurship to improve labor productivity and economic growth in the region.
The World Bank report recommends that governments in the MENA region should focus on three main areas: streamlining the business environment, creating incentives for privatization, and empowering women entrepreneurs and workers. Enhancing female participation in the workplace could potentially increase the MENA GDP per capita by around 50 percent, providing a significant boost to regional economies.
It's clear that the global economic outlook presents challenges for Kuwait, but with careful planning and strategic policies, both public and private sectors can navigate these uncertainties and ensure sustainable growth for the country.
In the context of global economic challenges, the financial implications for Kuwait's business sector could face pressure, particularly due to the drop in oil prices and potential harm from ongoing trade tensions between the US and China. The World Bank, in its report titled 'Shifting Gears: The Private Sector as an Engine of Growth in the Middle East and North Africa', stresses the importance of improving the business environment, incentivizing privatization, and empowering women entrepreneurs and workers, as a means to boost the regional economy, including Kuwait.
