Kuwait Economic Brief. February 2018

Transcription

1 February Oil slips on US supply concerns; Government spending accelerates real estate activity rose in 7; in November...Credit growth to close inflation fell to -year low in at.%...kd billion budget 7; earnings and reform support surplus expected for FY / Boursa in January Kuwait Economic Brief An update of recent developments in select sectors in Kuwait published by Economic Research at NBK

2 Contents Oil markets Oil prices slip on expectations of surging US shale growth in Monetary developments Credit growth slowed to.% in November on corporate repayments Consumer price inflation Inflation averaged.% in 7, a -year low Real estate Real estate activity rose in 7, though sectoral growth was uneven Stock market Earnings season and reform support Boursa in January

3 Oil markets Oil prices slip on expectations of surging US shale growth in > Omar Al-Nakib Senior Economist +9 9, Highlights Oil prices slipped recently on concerns that rampant US shale growth is compromising OPEC s efforts to clear the global supply glut. US inventories built for the second week in a row and US crude output hit. mb/d in January the highest since 97. Oil was also a casualty of the broader commodity/equity markets sell-off; Brent closed down -.% year-to-date at $./bbl. Tighter supplies and burgeoning oil demand have so far supported prices; OECD stocks are down to.9 billion barrels and within mb of OPEC s -year average stock level target. Reflecting the prospect of further US output gains in, many oil sector analysts see Brent trading below its current level at $/bbl on average for the year, though history has taught us that oil prices are very hard to predict. 9 7 Chart : Crude oil prices ($/bbl) ICE Brent (Front month) NYMEX West Texas Intermediate (WTI, Front month) Feb- Feb- Feb- Feb-7 Feb- Source: Thomson Reuters Datastream Chart : OECD commercial crude & product stocks. (billion barrels) 9 7. Oil prices fall on bearish US petroleum data and contagion from the broader capital markets sell-off.. The positive momentum that propelled oil prices to four year highs appears to have slipped since the start of the month. A combination of bearish oil data out of the US showing crude stocks building for the second week in a row and US crude production breaking through the symbolic mb/d level and contagion from sell-off in the equity, debt and broader commodity markets were the main factors. Prices have fallen in six of the last eight trading sessions. The international crude benchmark, Brent, closed at $. per barrel (bbl) on Wednesday, moving down into negative territory on a year-to-date basis, at -.%, for the first time this year. And since hitting a four-year high of $7. on January, Brent has fallen by 7%. West Intermediate (WTI), the US crude marker, closed at $.7/bbl on Wednesday, falling.% since reaching its four-year high of $ (Chart.) A tightening oil market had supported oil prices in the past few months, with global stocks drawing down and the oil futures curve firmly in backwardation Supply and demand fundamentals have supported oil s near 7% rise since late June 7. Thanks primarily to the efforts of OPEC and its ten non-opec partners led by Russia to rein in the supply surplus, the oil market has visibly tightened. (OPEC output rose slightly to. mb/d in December, but compliance reached a high of % see Chart.) In their efforts, the oil producers have also been aided by a price-positive mélange of robust oil demand, supply outages, heightened geopolitical risk premia and, up until recently, a weaker US dollar Dec- Mar-7 Jun-7 Sep-7 Dec-7 Source: IEA; December 7 data is preliminary Chart : Brent forward curve ($/bbl) 7 7 January (Close of March contract) Mar- Mar-9 Mar- Mar- Mar- Mar- Source: Bloomberg A reading of the most recent International Energy Agency (IEA) estimate of the amount of crude and petroleum stocks in storage across the OECD, NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

4 one of the key metrics by which OPEC is gauging the efficacy of its supply cuts, is certainly encouraging as far as the oil producers group (and oil bulls) is concerned. Thanks to burgeoning demand for middle distillates such as diesel, global stocks were down for the fourth consecutive month in November, at,9 billion barrels, which would bring OPEC to within million barrels of its target five-year average (rolling) stock level the level at which the oil producers group sees global inventories as having normalized. (Chart.) Stocks had been as high as million barrels over the fiveyear average back in July. Indeed, according to the IEA, preliminary estimates of December s inventories show that they were on track to close the year down by 7 million barrels at.7 billion barrels. Meanwhile, over in the futures market, a glance at the Brent forward curve shows that prices for crude deliveries all the way through to, were lower than prices for nearer-term and immediate (spot) deliveries. (Chart.) Backwardation, as the structure is known, typically reflects strong demand and tighter supplies; the last time the trend was this pronounced was back in. prompting a slew of upward price forecast revisions for Reflecting the changing landscape, money managers amassed record bullish positions (net longs ) in crude futures and options worth more than half a billion contracts in anticipation of firmer prices. Commodities traders and investment houses have, in turn, responded by raising their forecasts for oil this year. Noted commodities trader, Goldman Sachs, even went as far as to predict a headline-grabbing price of $. for Brent within six months. But lower consensus forecasts for crude in reflect concerns about rising US shale supply Consensus forecasts appear to favor prices settling at $ on average this year. Even though it represents a rise of % compared to last year s average of $., it is lower than the current oil price. The lower price forecast for largely reflects the markets expectation of quite dramatic increases in US shale growth this year. These concerns have once again resurfaced with US crude production recently topping mb/d, a level last witnessed in 97. (Chart.) The IEA, in its monthly oil market report, noted that surging US oil production, itself motivated by higher oil prices, will be responsible for % (. mb/d) of the.7 mb/d in non-opec supply growth expected in. US crude expanded by more than mb/d in 7, replacing effectively % of the crude taken off the market by OPEC and its non- OPEC partners last year. Output in Canada and Brazil is also projected to increase substantially this year. Chart : OPEC crude oil production in 7 (mb/d) Average 'call'on OPEC in OPEC- OPEC- 97. % 9. % 7.% 9. %.%.7 %. % 9. % 9.9 %.%.% % J F M A M J J A S O N D Source: OPEC (secondary sources); compliance represented as a % Chart : US crude oil production & rig counts Chart : Balance of oil supply & demand (mb/d)., Crude oil production (mb/d, LHS)., Oil rig count (no. of oil rigs, RHS)., 9. 9., 9., 9., Feb- Nov- Aug- May-7 Feb- Source: US Energy Information Administration (EIA), Baker Hughes. Balance/Implied stock change (RHS) Demand (LHS) Supply* (LHS) Q Q7 Q7 Q Q Source: IEA; assumes OPEC supply in of around. mb/d Global oil demand and supply to roughly balance in, with little scope for further stock draws World oil demand and supply are expected to track each other quite closely in, rising to 99. mb/d on average, following demand growth of. mb/d and supply growth of. mb/d, respectively. (Chart.) This does assume that output by OPEC and its partners will remain constant in as per the terms of the production cut agreement. Global oil demand has benefitted from better-than-expected economic activity, some of which has been stimulated by lower oil prices. The NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

5 International Monetary Fund (IMF) recently revised up its forecast of economic growth in to.9% from.7% in 7. With scope for further stock draws this year limited given that the market is roughly in balance, much of the attention will inevitably switch to the unfolding shale story in the US and focus on the demand side of the equation. Turbulence is certainly envisaged, especially over the next few weeks when oil enters a period of seasonally weaker demand due to refinery maintenance. Market participants should prepare for a bumpy ride. NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

6 Monetary developments Credit growth slowed to.% in November on corporate repayments > Nemr Kanafani Head of Research +9 9, > Chaker El Mostafa Economist +9 9, Bank credit contracted in November, with growth slowing to.% year-on-year (y/y). The month had seen the completion of the KD million acquisition of a stake in Zain by Omantel, which is thought to have resulted in some corporate repayments. Still, credit growth had been slowing already before this. Growth during the three months ending in October had slipped to an annualized.%. Meanwhile, private deposits saw a decent increase in November. Business credit was off in November, likely reflecting corporate repayments related to the Zain acquisition. Lending excluding credit to nonbanks and household credit dropped by KD million, with growth slipping to.% y/y. Most sectors saw credit lower or unchanged, with the main declines in lending for the purchase of securities (-KD mn), real estate (-KD mn), oil & gas (-KD mn) and construction (-KD mn). No business sector showed any noticeable gains during the month. (Chart.) Growth in lending to productive business sectors was steady in November, holding on to a somewhat more robust pace of.% y/y. Productive credit, which excludes real estate and financial sector lending, still dropped by KD 7 million in November. Nonetheless, growth has weakened in recent months, particularly on the heels of a stronger first half of 7. Household lending was the only sector to see noticeable gains in November. While personal facilities excluding securities lending rose a net KD 7 million during the month, this figure was slightly more modest than gains in recent months. Growth remained steady at 7.% y/y (Chart ). Private deposits rose in November. The KD million increase was largely on gains in foreign currency and KD sight deposits. Money supply (M) growth rose to.9% y/y. Government deposits continued to decline, losing KD 97 million during the month, with growth slowing to.% y/y. (Chart.) The banking system s liquid reserves edged higher in November. Bank reserves (cash, deposits with the CBK, and CBK bonds) increased by KD 7 million to KD.7 billion (Chart ), rising to 7.% of bank assets. This coincided with the absence of public debt issuance in November. As such, the amount of outstanding domestic public debt instruments (PDIs) was steady at KD.77 billion, or an estimated % of GDP. Domestic interest rates were little changed in November. The -month interbank rate edged up basis point to settle at.% (Chart ), though rates have moved higher since. Customer deposit rates were unchanged on the month. 9 7 Source: Central Bank of Kuwait Chart : Credit growth Nov- Nov- Nov- Nov- Nov Chart : Credit growth by component Source: Central Bank of Kuwait - - Nov- Nov- Nov- Nov- Nov-7 - Chart : Money supply growth Source: Central Bank of Kuwait Household debt Business credit (all remaining) Non-bank financials M M - - Nov- Nov- Nov- Nov- Nov NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

7 Table : Monetary indicators -month -month -month Nov-7 change change change KD mn KD mn % KD mn % KD mn % Total system liquidity (M),7..,.9 Currency in circulation, Private sector deposits, KD deposits,9..,7. Sight deposits,.7..9 Savings deposits, Time deposits & CDs 9, Foreign currency deposits, Source: Central Bank of Kuwait Table : Consolidated bank balance sheets -month -month -month Nov-7 change change change KD mn KD mn % KD mn % KD mn % Total bank assets, ,7. Core liquid assets, Cash and CBK deposits CBK bonds, Time deposits with CBK, Public debt instruments,..7,7. Interbank deposits, Credit facilities, ,7. Foreign assets, Other assets, Total bank liabilities, ,. Total deposits, ,. Private sector deposits, Government deposits, Interbank deposits, Foreign liabilities, Other liabilities, Shareholder equity, Source: Central Bank of Kuwait Chart : Bank reserves (% of bank assets) Nov- Nov- Nov- Nov- Nov-7 Source: Central Bank of Kuwait Chart : Interbank rates (%, -month rates, daily) US Libor M KIBOR M Spread.. Jan- Jan- Jan- Jan-7 Jan- Source: Thomson Reuters Datastream. Chart : Exchange rates USD / KD (LHS) Euro / KD (RHS) Jan- Jan- Jan- Jan-7 Jan- Source: Thomson Reuters Datastream NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

8 Consumer price inflation Inflation averaged.% in 7, a - year low > Fatema Akashah Economist +9 9, fatemahakashah@nbk.com > Nemr Kanafani Head of Research +9 9, nemrkanafani@nbk.com Inflation slowed noticeably in 7 to average.% during the year, a -year low. Inflation had spiked at the end of as transport costs rose following fuel price hikes that year and pushing average inflation to.%. Since then, weaker food and housing prices have pushed inflation lower. Inflationary momentum remained soft at the end of the year, with inflation slipping to.% year on year (y/y) in December. (Chart.) Chart : Consumer price inflation General index Core (excl. food & bev.) CPI excl. food & housing Slower inflation in December was driven down by a decline in the cost of housing services and flat food prices. (Chart.) Housing rents continued to decline while food and beverage prices remained flat, resulting in a.% year on year (y/y). Core prices dipped as well, down to.% y/y, as consumer goods related to the housing sector, such as furnishings, slowed down (Chart ). Housing services prices retreated further in December, though the decline was moderate compared to that seen in the past two years. The real estate market had slowed considerably in and, and apartment vacancies increased, putting downward pressure on rent. In December 7, the sub-index declined by.% y/y. This was a relatively smaller decline than that seen over the last year, thanks to a recovery in the residential real estate activity, which could translate to eventual improvement in the rental market. Food price inflation is expected to recover with the pickup in global food prices. Domestic food and beverage prices in December 7 rose by.% y/y, continuing the trend for most of 7 and part of. The increase in global food prices (Chart ) would entail higher domestic prices this year. Prices of retail goods related to the housing sector fell, partially contributing to easing in general prices in December. The cost of furniture and household maintenance services dipped below % y/y in December for the first time since November. Other prices picked up strongly in December (Chart ), mainly on the back of an.% y/y pickup in personal care items. There was a noticeable easing in growth in the cost of non-housing services in December. Inflation in services excluding housing eased to.% y/y, half the.% pace seen in November (Chart ). Most of this slowing inflation came from services related to healthcare, transport, and food. Dec- Dec- Dec- Dec- Dec- Dec-7 Source: Central Statistical Bureau, NBK estimates Chart : Inflation in housing services Source: Central Statistical Bureau - - Dec- Dec- Dec- Dec- Dec- Dec Chart : Inflation in food & beverages Kuwait prices (LHS) International prices (-month lag, RHS) Dec- Dec- Dec- Dec- Dec- Dec-7 Source: Central Statistical Bureau - NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

9 Table : Consumer price inflation (% change) Year-on-year Annual Avg. Nov-7 Dec-7 7 Food & beverages...7. Tobacco & cigarettes.... Clothing & footwear.... Housing services* Furnishing & household maintenance..7.. Healthcare Transportation.9... Communication Recreation & culture Education..9.. Restaurants & hotels Other goods & services Core** Chart : Inflation in other sectors Clothing & footwear Furnishings & household maintenance Other goods & services - - Dec- Dec- Dec- Dec- Dec- Dec-7 Source: Central Statistical Bureau Durable goods.... Semi-durable goods.7... Non-durable goods.... Services Services ex-housing.... General Index.... Source: Central Statistical Bureau, NBK estimates * Updated once every quarter ** Excludes food & beverages; estimated by NBK Chart : Inflation in services ex. housing Services ex-housing Services - - Dec- Feb-7 Apr-7 Jun-7 Aug-7 Oct-7 Dec-7 Source: Central Statistical Bureau, NBK estimates Chart : Inflation in transportation - - Dec- Dec- Dec- Dec- Dec- Dec-7 Source: Central Statistical Bureau NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK, 7

10 Real estate Real estate activity rose in 7, though sectoral growth was uneven > Fatema Akashah Economist +9 9, > Nemr Kanafani Head of Research +9 9, Activity in the residential sector was strong while the investment and commercial sectors fell behind. Overall activity improved as the number of transactions rose.% to,. However, sales decreased again in 7 but a slower rate (.9%; to KD. billion) than in the past two years (Chart 7). While residential activity grew by %, sales in the investment and commercial sectors fell 9% and 7%, respectively. The real estate market benefited from some optimism during the year as oil prices improved. The year also saw a stabile consumer sector which may have provided some impetus to the residential property market. Real estate sales were up slightly in December, but compared unfavorably to strong figures reported a year ago. Sales rose to KD 7. million in December, but were down.% year-on-year (y/y) mostly as the commercial sector posted much weaker numbers compared to the prior year (Chart ). Residential sector sales were stable in December 7 as prices continued to improve. Though the number of transactions in the sector was down % y/y in December 7 (to from an average of for the year), sales activity grew by % y/y in terms of value, to KD. million (Chart ). Prices increased in the residential real estate sector, especially in residential homes. The NBK Residential Home price index posted positive annual growth for the first time in two years, rising.% y/y to reach.. The Residential Land Index declined.% y/y, but compared to the 7 overall, the pace of decline has eased. (Chart.) Investment property sales were lackluster in December. Contracts in the month amounted to KD 9. million, down 9% y/y and marking the ninth month of negative annual growth in 7. Transactions also slowed to 7, down % y/y. Two-thirds of the transactions were apartment units located predominantly in Mahboula and Bneid Al-Gar. The investment sector prices improved in December, but declined compared to last year. The index reached. in December 7 (Chart ), rising.% m/m, but remained down.% y/y. The index appeared to stabilize in 7, notwithstanding a temporary dip in the Q7 which was reversed in Q7. Commercial sector activity picked up pace after a slow November, but was well below levels recorded during a period of strength a year ago. December saw just one commercial transaction; a building in Salmiya sold for KD million (Chart ). Sales were down % y/y. Chart : Monthly real estate sales Source: Ministry of Justice (KD million) Dec- Jun- Dec- Jun- Dec- Jun-7 Dec-7 Chart : Residential real estate sales Source: Ministry of Justice, NBK estimates Chart : Residential real estate price indices (index, -month moving average, =) Source: Ministry of Justice, NBK estimates Inv Property Sales Resid Property Sales Comm Property Sales Dec- Jun- Dec- Jun- Dec- Jun-7 Dec-7 Sales (KD mn, LHS) KD mn, monthly, MMA (RHS) Residential Home Residential Land Dec- Dec- Dec- Dec- Dec- Dec-7 NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

11 Table : Real estate sales Monthly average 7 Nov 7 Oct Nov Dec %m/m %y/y Sales (KD mn) Residential property Investment property Commercial property Number of transactions Residential property Investment property Commercial property Chart : Investment real estate sales Sales (KD mn, LHS) KD mn, monthly, MMA (RHS) Transaction size (KD ) Residential property.9... Investment property Commercial property,,,,., Source: Ministry of Justice Note: Our real estate indexes database comprises, 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, i.e. price index equals. The indexes are not adjusted for seasonality nor for number of business days. They also do not cover the commercial sector. Dec- Jun- Dec- Jun- Dec- Jun-7 Dec-7 Source: Ministry of Justice, NBK estimates Chart : Investment building price index (index, -month moving average, =) Dec- Dec- Dec- Dec- Dec- Dec-7 Source: Ministry of Justice, NBK estimates Chart : Commercial real estate sales (KD million) Sales (KD mn, LHS) KD mn, monthly, MMA (RHS) Dec- Jun- Dec- Jun- Dec- Jun-7 Dec-7 Source: Ministry of Justice, NBK estimates Chart 7: Contribution to RE sales growth (% contributed to total y/y growth) Residential Sales Investment Sales Commercial Sales Source: Ministry of Justice, NBK estimates NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK, 9

12 Stock market Earnings season and reform support Boursa in January > Chaker El Mostafa Economist +9 9, > Nemr Kanafani Head of Research +9 9, Kuwaiti equities started the year on a strong footing, increasing by.% in January. Expected healthy earnings announcements and the stock market reforms helped prop up investor confidence, with trading activity up % from the previous month to average KD.7 million per day. Foreigners were net buyers in January and supported the jump in activity, with their share of foreign buying edging higher to.% from 9.7% in December. This helped the market add KD 7 million in value, its largest gain since August 7, settling at KD. billion. Chart : Boursa Kuwait Value of traded shares (KD mn, LHS) KSE price index (RHS) 7 7 The weighted index rose.%, while the price index gained.%, with most sectors up. The largest gainer was the telecommunications sector, up.%, followed by the real estate and the basic materials sectors, up.9% and.%, respectively. The insurance sector was the worst performer, while both consumer goods and consumer services retracted as well. Boursa Kuwait announced a new exchange structure and rulebook, in a bid to boost liquidity and the market s attractiveness to investors. Equities will be split into three markets. The Premier market will have more stringent size and liquidity requirements, require companies to publish financial reports in both English and Arabic and to hold quarterly conference calls. Companies that do not meet these requirements and can maintain a certain level of liquidity will be listed on the Main market. All others will be listed on the Auctions market. The new rulebook also includes a new fee structure, and market-wide and stock-specific circuit breakers. The changes will be effective on March, with some listings allowed a one-year grace period before being downgraded to a lower market tier. Jan-7 Apr-7 Jul-7 Oct-7 Jan- Source: Thomson Reuters Datastream, Boursa Kuwait Chart : Regional markets MSCI Kuwait MSCI GCC MSCI Emerging MSCI World (rebased indexes) Source: Thomson Reuters Datastream 9 9 Jan-7 Apr-7 May-7 Jul-7 Sep-7 Nov-7 Jan- Chart : GCC markets & oil 7 Brent Price ($/barre, LHSl) MSCI GCC Total Return Index (RHS) 99 9 Jan-7 Apr-7 Jul-7 Oct-7 Jan- Source: Thomson Reuters Datastream NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

13 Chart : Market indexes (rebased indexes) Price index Value weighted Jan-7 May-7 Jul-7 Oct-7 Jan- Source: Thomson Reuters Datastream, Boursa Kuwait Chart : Foreign buyers (% y/y, mma) Jan- Apr- Jul- Oct- Jan-7 Apr-7 Jul-7 Oct-7 Jan- Source: Boursa Kuwait Table : Boursa Kuwait performance by sector, January Change % Price Weighted Market % of Trading activity Price to Price index Weighted index index index cap (KD mn) Market (daily avg.) earnings* -Jan -Jan m/m YTD m/m YTD -Jan mn shares mn KD -Jan Total market...., Banks , Basic materials Consumer goods Consumer services Financial services...9.9,.... Healthcare Industrials 7....,.... Insurance Oil & gas Real estate , Technology Telecommunications 7....,....9 Parallel Source: Boursa Kuwait, Thomson Reuters Datastream * PE is calculated using market cap as of month close and latest months trailing earnings. NBK Economic Research, T: (+9) 9, F: (+9) 97, econ@nbk.com, NBK,

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