Kuwait Economic Brief. November surplus expected for FY 2012/13

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1 November Government spending accelerates Oil prices top $; inflation in November...Credit close slows to multi-yeargrowth low; to real atactivity.%...kd billion budget estate shows traction surplus expected for FY / Kuwait Economic Brief An update of recent developments in select sectors in Kuwait published by Economic Research at NBK

2 Kuwait Economic Brief - November Contents Oil markets Oil prices top $ as OPEC works off excess supply amid stronger demand Monetary developments August credit growth was steady at.%; household credit was solid Consumer price inflation Inflation slowed to a multi-year low of.% in September Trade Trade surplus steady in Q; Imports growth holds firm Projects 9 Awards eased on delays and cancellation; healthy pipeline expected Real estate Real estate activity showing traction; prices remain stable Stock market Government resignation weighs on Kuwait equities

3 Kuwait Economic Brief - November Oil markets Oil prices top $ as OPEC works off excess supply amid stronger demand > Omar Al-Nakib Senior Economist +9 9, omarnakib@nbk.com Highlights Brent breaks through the $ level for the first time since mid- on signs that the physical market is tightening. Increased bullish sentiment reflects OPEC/non-OPEC commitment to output cuts, continued stock drawdowns, stronger crude demand and elevated geopolitical risk. OPEC expected to roll over production cuts to end-; markets have already priced this in as hedge funds amass record long positions. Global demand to outstrip supply in ; the IEA projects demand growth of. mb/d in and. mb/d in. US crude output back to pre-hurricane Harvey levels, although tapering oil rig count growth could mean that US shale underperforms in. Brent tops symbolic $ level amid signs of tighter supplies and stronger demand Oil prices wrapped up a fourth consecutive month of gains in October. Brent crude, the international benchmark, traded above $ per barrel (bbl) for the first time in more than two years. Indeed, Brent is up almost % since its -low in mid-june. (Chart.) West Texas Intermediate (WTI), meanwhile, is ranged close to its highest level of the year at $/ bbl. The US marker has returned % over the same period. Both crude markers, but Brent especially, have benefited in recent weeks from a combination of bullish signals: tightening crude supply; improving global crude demand; continuing drawdowns in global crude stocks, which is one of OPEC s key objectives; mixed US shale data; and rising geopolitical risk. The production cut agreement between OPEC and eleven oil producers from outside the group, led by Russia, has been instrumental in draining excess supplies and inventories from the market. Compliance has been at or above % for most of the ten months of the agreement, and several members, notably Russia and Saudi Arabia, have made a concerted effort to manage the public relations game properly, linking the observed drawdown in commercial crude stocks to their efforts. OECD commercial crude and product inventories have indeed been declining since their peak in July, but the pace has been glacial. Inventories were down to. billion barrels in August, a fall of.9% (9 million barrels) from their peak of. billion barrels thirteen months earlier. (Chart.) And while August s level brings OPEC to within striking distance ( million barrels) of its five-year average target level (. billion barrels), truth be told, much of this reflects the fact that the target level itself has increased (as it is a rolling average). Chart : Crude oil prices ($/bbl) Oct- Jan- Apr- Jul- Oct- Source: Thomson Reuters Datastream Chart : OECD commercial crude & product stocks ICE Brent (Front month) NYMEX West Texas Intermediate (WTI, Front month) (billion barrels).. Aug- Feb- Aug- Feb- Aug- Source: International Energy Agency (IEA) 9 Chart : Brent forward curve -Oct- Backwardation ($/bbl) Nov- Nov- Nov-9 Nov- Nov- Nov- Source: Bloomberg Nevertheless, as the OPEC Secretary General, Mohammad Barkindo, put it recently: a balanced oil market is now fully in sight. And OPEC and its counterparts should be commended for steadfastly pursuing their goal with a level of unity and compliance hitherto unprecedented. OPEC, NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

4 Kuwait Economic Brief - November through its Joint Ministerial Monitoring Committee (JMMC), pegged its compliance at a record % in September. September s crude production was. mb/d, an increase of 9, b/d on August s figure, according to OPEC secondary sources. (Chart.). Chart : OPEC crude oil production (mb/d). Markets expect OPEC/non-OPEC to extend production cut agreement until end-; OPEC reportedly working on orderly exit strategy.... Markets have been further reassured recently by the rhetoric coming out of the OPEC/non-OPEC camps in favor of extending the production cut agreement through to the end of. The group will next meet on November in Vienna to discuss progress, the potential for rolling over the cuts and a possible orderly exit strategy to minimize the likelihood of producers opening the taps on the deal s expiry and flooding the market. It s not clear whether an official communique on either of these will be forthcoming, however. OPEC may opt to wait until closer to the expiration of the agreement in March for an announcement, preferring perhaps to keep the watching US shale industry, which will be keen to capitalize on an extension, in a prolonged state of uncertainty. In any case, oil s four-month bull run shows that much of this has already been priced in. And over in the futures market, the backwardated structure of the Brent forward curve, where prices for immediate delivery of crude are higher than prices for future delivery, is in OPEC s favor, encouraging spot sales and dis-incentivizing crude storage. (Chart.) With crude prices lower further out, hedging, which has been so effectively employed by US shale firms during the oil price downturn to lock in revenues, becomes less viable. But there is little room for complacency on OPEC s part: anything less than an emphatic commitment to manage supply in the interim could trigger a market sell-off. Speculative positions by hedge funds are overwhelmingly bullish, with almost ten times as many longs as shorts currently on the books. At least $ billion worth of long positions have been amassed in Brent. This is a record amount which could unwind at the first sign of a misstep from the oil producers group. Strong global demand growth in helps clear supply surplus, but could be a different story Global crude demand growth in has so far proven surprisingly strong, such that by the end of the year, it is more than likely to have outstripped supply by a considerable margin. The IEA pegs demand growth in at. mb/d (.%), which, if OPEC supplies continue at current levels, could mean a gap of. mb/d over expected global supply growth. (Charts &.) Global stocks could have, by year s end, drawn down by million barrels (. mb/d). Buoyant demand has reflected the improvement in the global economy, as the IMF recently noted in its World Economic Outlook. Importantly for oil, revisions to global GDP growth (+.% to.% and.% in and, respectively) were supported by upwards reassessments to Chinese economic growth. China accounts for % of global crude oil demand, with LPG, gasoline and diesel the major refined products driving demand. The story in could look quite different, however. Supply growth could outpace demand growth if the IEA is correct in its estimates. The agency projects demand growth of. mb/d and non-opec supply growth of. mb/d. The US is expected to be the largest contributor to.... Sep- Dec- Mar- Jun- Sep- Source: OPEC (secondary sources) Chart : World demand & supply growth (mb/d) -. Q Q Q Q Source: IEA, NBK; * forecast assumes OPEC output at September levels Chart : Balance of supply and demand (mb/d) World demand growth World supply growth 9 -. Q Q Q Q Source: IEA, NBK; * forecast assumes OPEC output at September levels Chart : US crude oil production & rig counts Balance/Implied stock change (RHS) Demand (LHS) Supply (LHS) Crude oil production (mb/d, LHS) Oil rig count (no. of oil rigs, RHS). Oct- Jul- Apr- Jan- Oct- Source: US Energy Information Administration (EIA), Baker Hughes ,,,,,, NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

5 Kuwait Economic Brief - November non-opec supply growth, with as much as. mb/d of crude oil coming on stream. This would follow s increase of. mb/d. US crude production does look like it has finally recovered to pre-hurricane Harvey levels of around 9. mb/d. (Chart.) Having said that, the tapering off of new oil rigs coming on-line since June does throw up the possibility that US shale growth may underperform as we head into ; oil rig counts declined in eight of the last ten weeks. There is usually a lag of up to six months before crude production adjusts to movements in the rig count data. Were US shale growth to perform in as the IEA forecasts then there is the possibility that global crude stocks could accumulate rather than draw down. This would postpone once more the market rebalancing that OPEC has so doggedly pursued. Hence the group s focus on extending the production cuts to the end of next year. Geopolitics to the rescue October saw oil prices also boosted by the return of the geopolitical risk premium, after months of relative quiet. Markets grew concerned that oil flows from Iraq could be compromised by Baghdad s confrontation with the Kurdistan Regional Government, after the latter staged a controversial independence referendum. The move drew the ire of Iran and, especially, Turkey, which threatened to close the key export pipeline carrying Kurdish crude (but also Iraqi federal crude from Kirkuk s oil fields) through Turkey to international markets. Pipeline exports from Iraq s northern oil fields reportedly fell by % during the month, from an average of, b/d to, b/d. Market jitters were also in evidence after President Trump decertified the Iran deal (The Joint Comprehensive Plan of Action), handing over the decision whether or not to nix the JCPOA and re-impose sanctions to US Congress. Congress has two months to deliberate, but the US is alone among the P+ signatories (Russia, China, the UK, the EU, France and Germany) in viewing the deal with disfavor, so it is unlikely that it could single-handedly terminate it. Geopolitics and the risk it poses to oil supplies is part and parcel of oil markets dynamics. OPEC, as it deliberates on extending its production cut agreement to keep oil prices steady within the desirable $-/bbl range may indeed be taking comfort from it. But it knows not to count on it. NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

6 Kuwait Economic Brief - November Monetary developments August credit growth was steady at.%; household credit was solid > Nemr Kanafani Senior Economist +9 9, nemrkanafani@nbk.com > Chaker El Mostafa Economist +9 9, chakermostafa@nbk.com Credit saw a moderate gain in August, though growth continued to slow on basis effects. The month saw a net gain of KD 9 million in credit, as growth eased to.% year-on-year (y/y). Most gains came from solid household borrowing and from some business sectors. Private deposits bounced back following a couple of months of decline. Meanwhile, interest rates held steady. Household lending saw a second consecutive month of strength in August, with growth steady at.% y/y. Personal facilities excluding securities lending added a net KD million during the month, double the average monthly gains achieved in the first half of. Business credit (excluding nonbanks) saw a relatively modest gain in August, as the real estate sector weighed on growth. Credit added a net KD million, with growth slipping to.% y/y. Gains were largely limited to construction and other sectors, which added KD million and million, respectively. These increases were partly offset by declines in real estate and oil & gas. Despite apparent weakness in business credit, lending to productive business sectors remained relatively robust in August. While growth in this segment, which excludes real estate and financial sector lending, was unimpressive at.% y/y, this was largely due to large settlements in Q. By contrast, growth thus far in averaged an annualized %. The August gain in this portfolio topped a healthy KD million, which is well above the average monthly gain of KD 99 million registered this year through August. Private deposits bounced back in August following two months of declines. Deposits rose by KD million on the back of gains in foreign currency deposits and KD time deposits. Some of this was offset by declines in KD sight and KD savings deposits. This helped push money supply (M) growth higher to.9% y/y. Government deposits were flat, with growth slipping to.9% y/y. The banking system s liquid reserves, or excess liquidity, edged lower in August to.% of bank assets. Bank reserves (cash, deposits with the CBK, and CBK bonds) decreased by KD million to KD. billion (Chart ). This coincided with KD million in net issuance of public debt. This increased outstanding domestic public debt instruments (PDIs) to KD. billion, or an estimated % of GDP. Domestic interest rates in August were little changed from July. The -month interbank rate edged up basis points to settle at. (Chart ); rates have slightly adjusted upwards since. Customer deposit rates were unchanged on the month. 9 Source: Central Bank of Kuwait Chart : Credit growth Aug- Aug- Aug- Aug- Aug Chart : Credit growth by component Source: Central Bank of Kuwait - Household debt Business credit (all remaining) - - Non-bank financials - Aug- Aug- Aug- Aug- Aug- - Chart : Money supply growth Source: Central Bank of Kuwait M M - - Aug- Aug- Aug- Aug- Aug NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

7 Kuwait Economic Brief - November Table : Monetary indicators -month -month -month Aug- change change change KD mn KD mn % KD mn % KD mn % Total system liquidity (M), ,.9 Currency in circulation, Private sector deposits, KD deposits, ,. Sight deposits, Savings deposits, Time deposits & CDs 9, Foreign currency deposits, Source: Central Bank of Kuwait Table : Consolidated bank balance sheets -month -month -month Aug- change change change KD mn KD mn % KD mn % KD mn % Total bank assets,.,.9,. Core liquid assets, Cash and CBK deposits CBK bonds, Time deposits with CBK Public debt instruments,9..,9. Interbank deposits, Credit facilities,9 9..,. Foreign assets, Other assets, Total bank liabilities,.9,.,9. Total deposits, ,. Private sector deposits, Government deposits, Interbank deposits, Foreign liabilities, ,. Other liabilities,.9.9,. Shareholder equity,... Source: Central Bank of Kuwait Source: Central Bank of Kuwait Chart : Bank reserves (% of bank assets) Aug- Aug- Aug- Aug- Aug Chart : Interbank rates (%, -month rates, daily) US Libor M KIBOR M Spread.. Oct- Oct- Oct- Oct- Oct- Source: Thomson Reuters Datastream. Chart : Exchange rates USD / KD (LHS) Euro / KD (RHS) Oct- Oct- Oct- Oct- Oct- Source: Thomson Reuters Datastream NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

8 Kuwait Economic Brief - November Consumer price inflation Inflation slowed to a multi-year low of.% in September > Dana Al-Fakir Economist +9 9, danafakir@nbk.com > Nemr Kanafani Senior Economist +9 9, nemrkanafani@nbk.com Consumer price inflation slipped to a multi-year low of.% in September, as deflationary housing costs were compounded by the fading impact of last year s fuel price hikes. (Chart.) Inflation excluding housing rent and food costs, dipped from.% y/y in August to.% y/y in September, highlighting the impact of fuel price hikes imposed in September. Meanwhile, there have been some upward inflationary pressures from retail goods and services excluding housing services. Chart : Consumer price inflation General index Core (excl. food & bev.) CPI excl. food & housing The annual average inflation rate for is likely to ease to.%, from the.% annual average recorded in. While there are some upward pressures from the retail goods segment and some services, these pressures are likely to be offset by continued softness in housing rent and food. Housing inflation saw a slight uptick in Q, likely on the back of hikes in electricity and water tariffs in the apartment sector. Costs in housing services mostly comprised of housing rents and updated quarterly remained in deflationary territory but fell at a slower pace of.% y/y in Q, versus the multi-year low of.% recorded in the previous quarter. (Chart.) Indeed, on a quarterly basis, housing cost was up by.%, its first rise in a year. However, housing inflation is still expected to remain fairly subdued in the forthcoming months, amid continued softness in housing rents. Local food price inflation remained weak in tandem with softer inflation in global food prices. Inflation in local food prices came in flat in September as global food price inflation remained weak. (Chart ). According to the Commodity Research Bureau, inflation in international food prices slipped back into contraction. This weakness is likely to limit any significant increases in local food costs in at least the near-tomedium term. Inflation in the retail sector saw some upward momentum in September, thanks to continued improvement in consumer demand and a weaker dinar. (Chart.) Inflation in the three major retail goods related components rose to or close to multi-month highs, thanks to healthier gains in consumer demand and a depreciation in the local currency. The weaker dollar has weighed on the dinar s trade-weighted index, which is currently down.% year-to-date. Given that most retail goods are imported, the weaker currency has pushed up costs in the sector. Inflation in services excluding housing services took a slight dip in September on the back of a downward correction in inflation in transportation costs. (Charts and ). Despite the downward pressures from transportation prices, inflation in services excluding housing services remained supported by continued gains in inflation in the restaurants & hotels and the recreation & culture segments. Inflation in restaurants & hotels rose from.% y/y in August to a multi-month high of.% y/y in September, while inflation in recreation & culture accelerated from.% y/y to a multi-year high of.% y/y, during the same period. Sep- Sep- Sep- Sep- Sep- Sep- Source: Central Statistical Bureau, NBK estimates - - Chart : Inflation in housing services Source: Central Statistical Bureau Sep- Sep- Sep- Sep- Sep- Sep- Chart : Inflation in food & beverages Source: Central Statistical Bureau Kuwait prices (LHS) International prices (-month lag, RHS) - Sep- Sep- Sep- Sep- Sep- Sep NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

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

10 Kuwait Economic Brief - November Trade Trade surplus steady in Q; Imports growth holds firm > Dana Al-Fakir Economist +9 9, danafakir@nbk.com > Nemr Kanafani Senior Economist +9 9, nemrkanafani@nbk.com Kuwait s trade surplus narrowed slightly to KD. billion in Q, as softer oil prices led oil exports lower. (Chart.) Meanwhile, imports continued to improve after some weakness in, thanks to solid capital goods imports data and some recovery in consumer goods. The surplus is slated to expand in the near- to medium-term, not least because higher oil prices will help prop up oil earnings. The Kuwait export crude price average came in higher in Q and is expected to continue to rise, especially on the back of a further extension of OPEC-led production cuts. Oil export receipts came under pressure in Q, after the price of Kuwait export crude (KEC) fell against a backdrop of steady oil production levels (Chart ). Oil revenues edged down from KD. billion in Q to KD. billion in Q. The price of KEC was down.% quarter-on-quarter (q/q) while oil production remained stable. Non-oil exports also came in lower in Q mainly on the back of a slowdown in growth in petrochemical exports. Non-oil export revenues fell by % q/q in Q. Non-oil exports could fall further in the following quarter amid a drop in ethylene prices. Imports held firm thanks to solid capital goods data and some recovery in consumer goods. (Chart ). At KD. billion, capital goods imports remained close to a multi-year high. Industrial supply imports also came in solid. The ongoing strength in these segments can be attributed to the improved implementation of the government development projects. Still, at.% year-on-year (y/y) in Q, import growth remains well below the.% pace averaged in the four years prior to. Consumer goods imports witnessed their first positive growth rate in a year, on the back of an improving consumer sector. Consumer imports jumped by.% y/y in Q, following strong rebounds in imports of food & beverages, passenger cars and transport equipment. Chart : Balance of trade in goods Source: Central Statistical Bureau (KD billion) Q Q Q Q Q Chart : Oil exports Source: Central Statistical Bureau, Kuwait Petroleum Corporation Chart : Imports KD billion (LHS) % y/y (RHS) Oil exports (KD billion, LHS) Oil prices ($ pb, RHS) Q Q Q Q Q Table : Foreign trade (KD million) Q Q Q change KD mn q/q % y/y Total exports,,, Oil,,, - 9. Non-oil - 9. Re-exports. Imports,,, -. Capital goods -. Trade balance,9,, Q Q Q Q Q Source: Central Statistical Bureau Source: Central Statistical Bureau NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

11 Kuwait Economic Brief - November Projects Awards eased on delays and cancellation; healthy pipeline expected > Fatema Akashah Economist +9 9, fatemahakashah@nbk.com > Hiba Koraytem Senior Economist +9 9, hibakoraytem@nbk.com Projects awards has moderated going into the third quarter of the year and the cancellation of the highly anticipated Al-Zour North project held back the third quarter from a stronger performance. Year to date (YTD), contracts awarded reached KD.9 billion, down 9% from the same period last year. Contracts worth KD. billion were awarded in Q, underperforming relative to the five-year quarterly average of KD. billion according to data from MEED Projects. The scrapping of Al-Zour North independent water and power project (IWPP) meant a loss of a contract worth up to an anticipated KD. bn for Q. The Kuwait Authority for Partnership Projects (KAPP), however, plans to retender the project as an integrated part of the Al-Zour North IWPP in the coming future. Awards in Q were boosted by the oil as well as the power sectors, each contributing KD million and KD million, respectively. Construction activity was slow in line with prior quarters at KD million though slightly improved from the previous quarter. The transport sector, however, showed the slowest activity for the first time in five consecutive quarters of healthy activity, contributing a mere KD million in Q. Delays in contract awards in the transport sector, such as those related to South Al Mutlaa City, affected the quarterly performance. Delays have pushed the award dates for projects further out into the coming few quarters, especially in the transport and construction sectors, but the pipeline remains healthy. In the next two quarters, Q and Q, the transport sector has up to a total of KD billion in contracts that are expected to be awarded; these projects are currently in the bidding phase. Delays are always on the horizon, but significant award activity at the end of year is likely. The construction sector pipeline remains promising with up to a possible KD billion in awards in the upcoming quarters, barring any unexpected delays. Chart : Awarded projects (KD billion) Construction Oil & Gas Transport Power & Water Q Q Q Q Q Q Q Q Q Source: MEED Projects Chart : Projects awards outlook (KD billion, projects currently under bidding*) Construction Oil & Gas Transport Power & Water Q Q Q Source: MEED Projects. *As of October,. Transport The transport sector had been dominating project awards the previous five quarters, with an average quarterly contribution of over KD million, but cooled in Q due to delays. In Q, two contracts were awarded in the transport sector worth a total of KD million, KD million of which was a contract awarded by the Ministry of Public Works (MPW) regarding roadwork connecting the th Ring Road to King Abdul Aziz Road. The Central Tenders Committee postponed awarding the contract related to road and crossroad construction in the South Al-Mutlaa area. The lowest bidder, a team of Ali Al-Kharafi & Brothers and Metallurgical Corporation of China, was not able to raise the required bank guarantee. The team had bid KD million for the contract. MEED reports that a team comprising of Turkey s Makyol and Kuwait s Contec United General Contracting could win the contract, offering the second lowest bid at KD 9 million. Up to a possible KD billion in awards are expected in the next few quarters in transport contracts. The MPW and Public Authority for Housing Welfare (PAHW), have a combined twelve contracts currently in NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK, 9

12 Kuwait Economic Brief - November the bidding phase. The contracts are related to the northern section of the regional road, the southern section of the regional road, and roads at South Al-Mutlaa. Several of these projects awards had been delayed but are expected to be awarded in the coming few quarters. Power & Water The power sector awarded four contracts worth a total of KD million in Q, which was made up mostly of the awaited waste-to-energy public private partnership project (PPP). The Kabd municipal solid waste project was awarded to a consortium led by France s Constructions industrielles de la Méditerranée that bid KD million; the project will be developed through a PPP-scheme. Though the cancellation of the Al-Zour North IWPP was a setback for both the power sector and the public-private endeavor as a whole the upside is that the second phase is planned to be integrated with the third phase of Al-Zour North. There are still no further developments on the Khairan IWPP, which was awaiting the progress on Al-Zour North. Up to KD million in power sector contracts are expected to be awarded in the coming four quarters. Among the anticipated awards is the Al-Dibdibah solar PV power plant in the upcoming Shagaya renewable energy complex. In line with the development plan goals, the Kuwait National Petroleum Company (KNPC) has tendered this project in the hopes it will contribute to the goal of solar energy providing % of the electricity demand in Kuwait by. Construction Four small-scale contracts were awarded in the construction sector in Q, resulting in a low contribution of KD million in the third quarter, but there is a strong project award pipeline in the coming quarters. The Jahra Ministries Complex is a possible KD million deal that could be awarded in the coming few quarters, possibly the second quarter of. MEED Projects reports that the lowest bidder is United Gulf Construction Co., and it is very likely it will be awarded the tender. There are, however, delays in the final award process due to budgetary constraints, pushing the award date to instead of. Oil & Gas Activity in the oil sector picked up in the third quarter with the award of the new refinery feed pipeline and three other contracts. Italian company Saipem won the bid for the feed pipeline for the new refinery in Al-Zour, a contract worth KD million. The sector as a whole achieved deals that totaled KD million. The second noteworthy contract is the crude transit pipeline from North Kuwait to Al-Ahmadi s central mixing manifold. The KD million contract was awarded to Indian contractor Larsen & Toubro. In the pipeline over the next couple of quarters are seven possible contracts worth in total up to KD million, the client of all but two is Kuwait Oil Company (KOC). NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

13 Kuwait Economic Brief - November Real estate Real estate activity showing traction; prices remain stable > Hiba Koraytem Senior Economist +9 9, hibakoraytem@nbk.com Activity in the real estate market is gaining traction with a pickup in sales and stabilizing prices. Real estate sales posted healthy % year-on-year (y/y) growth in Q, the first positive growth since Q, despite the seasonality that customarily reigns over the quarter. The positive pickup in activity also translated into further stabilization in real estate prices, with indices hovering around their -month average. Comparable stabilization is seen in other GCC real estate price indices despite slight divergence in trends. Chart : Monthly real estate sales (KD million) Inv Property Sales Resid Property Sales Comm Property Sales The residential sector remained supportive of the real estate market throughout the first three quarters of the year. Residential sales reached KD million in Q, up % y/y. Year-to-date (ytd) sales tallied up to KD 9 million over,9 transactions. As for the month of September, sector sales were up % y/y with transactions improving by % y/y. Renewed interest in the sector was not channeled through a specific type of properties; both home and plot sales advanced, rising by % and %, respectively ytd. Strong third quarter activity helped support residential prices further. The NBK residential home price index reached. in September, flat from a year ago. The NBK residential land price index soared to. in September, up % for the month, though it remains down.% y/y. Although residential prices are down around % from their peaks, their annual pace of decline has come down from double-digit to less than %, suggesting the end of the price correction. (Chart ). Investment properties activity remains off, not in line with the spur in the residential sector, as other markets seem more appealing to investors. Q sales reached KD. million, down to a third of what was recorded in Q. The exceptional performance of Kuwait s stock market this year may have deterred investors from investing in real estate. With stocks generating double-digit growth so far this year, the investment sector, plagued by increased vacant apartments, lower housing inflation (i.e. rents) and higher utility bills, was not able to generate comparable returns. The persistently slow activity in the sector continues to exercise negative pressure on investment property prices. The NBK investment building price index retreated to. in September, down.% y/y (Chart ). The price index has settled at levels last seen at the end of. The index is off by % from its peak in July. The commercial sector witnessed a healthy third quarter. commercial properties were sold during the quarter for a total value of KD million. This quarter s transactions were predominantly commercial buildings and offices. Ytd, the sector is % short on sales and % on transactions (Chart ). Sep- Mar- Sep- Mar- Sep- Mar- Sep- Source: Ministry of Justice Chart : Residential real estate sales Sep- Mar- Sep- Mar- Sep- Mar- Sep- Source: Ministry of Justice, NBK estimates Chart : Residential real estate price indices (index, -month moving average, =) Source: Ministry of Justice, NBK estimates Sales (KD mn, LHS) KD mn, monthly, MMA (RHS) Residential Home Residential Land Sep- Sep- Sep- Sep- Sep- Sep- NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

14 Kuwait Economic Brief - November Table : Real estate sales Chart : Investment real estate sales Monthly average Aug July Aug Sept %m/m %y/y Sales (KD mn) Residential property Sales (KD mn, LHS) KD mn, monthly, MMA (RHS) Investment property Commercial property Number of transactions Residential property -.. Investment property. -. Commercial property Transaction size (KD ) Residential property 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. Sep- Mar- Sep- Mar- Sep- Mar- Sep- Source: Ministry of Justice, NBK estimates Chart : Investment building price index (index, -month moving average, =) Sep- Sep- Sep- Sep- Sep- Sep- Source: Ministry of Justice, NBK estimates Chart : Commercial real estate sales (KD million) Sales (KD mn, LHS) KD mn, monthly, MMA (RHS) Sep- Mar- Sep- Mar- Sep- Mar- Sep- Source: Ministry of Justice, NBK estimates NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

15 Kuwait Economic Brief - November Stock market Government resignation weighs on Kuwait equities > Hiba Koraytem Senior Economist +9 9, hibakoraytem@nbk.com > Nemr Kanafani Senior Economist +9 9, nemrkanafani@nbk.com A strong start to the month for Boursa Kuwait soon lost traction on news of the possible questioning of some cabinet members by the National Assembly. The market s indices ended the month down after the resignation of the government later in the month. Thus far, Q earnings do not appear to have had a positive impact on stock prices. The market lost.% of its capitalization in October, to end the month at KD 9. million. The price and weighted indices both retreated by.% on the month, with most sectors seeing declines. The hardest hit were consumer goods and telecoms, which fell by 9.% and.9%, respectively. Telecoms fell on the back of weak earnings reported by one of the major names. Banks also failed to end the month in positive territory, despite positive financial results. Meanwhile, trading volumes were low. The average daily traded value declined to KD. million in October, down % on the month. Foreign buying in October continued to edge lower to a -month moving average of.% but still compared well to its average in the first two quarters of the year. In the upcoming weeks, market focus will be on Omantel s planned acquisition of a.% stake in Zain. Earnings announcements will continue till mid-month. Chart : Boursa Kuwait Oct- Jan- Apr- Jul- Oct- Source: Thomson Reuters Datastream, Boursa Kuwait Value of traded shares (KD mn, LHS) KSE price index (RHS) Chart : Regional markets MSCI Kuwait MSCI GCC MSCI Emerging MSCI World (rebased indexes) 9 9 Oct- Dec- Feb- Apr- Jun- Aug- Oct- Source: Thomson Reuters Datastream Chart : GCC markets & oil Brent Price ($/barrel, LHS) MSCI GCC Total Return Index (RHS) Oct- Apr- Oct- Apr- Oct- Source: Thomson Reuters Datastream NBK Economic Research, T: (+9) 9, F: (+9) 9, econ@nbk.com, NBK,

16 Kuwait Economic Brief - November Chart : Market indexes (rebased indexes) Price index Value weighted 9 9 Oct- Jan- Apr- Jul- Oct- Source: Thomson Reuters Datastream, Boursa Kuwait Chart : Foreign buyers (% y/y, mma) Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Source: Boursa Kuwait Table : Boursa Kuwait performance by sector, October Change % Price Weighted Market % of Trading activity Price to Price index Weighted index index index cap (KD mn) Market (daily avg.) earnings* -Oct -Oct m/m YTD m/m YTD -Oct mn shares mn KD -Oct Total market ,9.... Banks , Basic materials Consumer goods ,.... Consumer services Financial services , Healthcare Industrials ,.... Insurance Oil & gas Real estate ,.... Technology Telecommunications ,...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) 9, econ@nbk.com, NBK,

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