Boston, MA -- (SBWIRE) -- 08/28/2012 -- Core Views We retain our broadly sanguine outlook on Kuwait's economic prospects for 2012. Elevated global hydrocarbon prices will allow the government to keep fiscal spending high, driving domestic consumption, and oil production looks set to remain near capacity in the months ahead. While our outlook on fixed investment is less positive, we nevertheless forecast real GDP growth of 4.5% in 2012, down only modestly from estimated growth of 5.7% in 2011. We expect inflation in Kuwait to head higher in H212 as public sector wage hikes and a prolonged period of loose monetary policy filter through to a boost in consumer spending. That said, falling global food prices and government subsidies will keep the headline print broadly under control, and we see average inflation in 2012 ticking up only slightly compared with last year, from 4.8% to 5.0%. Major Forecast Changes Following the announcement that no opposition MPs have been included in Kuwait's new cabinet - which includes just one elected minister - it now seems very likely that the political stalemate which has characterised local politics in recent years will persist well into 2012. Further parliamentary infighting is likely to occur in the months ahead, and we would not rule out another dissolution of parliament in the coming year. We have revised down our short-term political risk rating from 71.0 to 69.4 out of 100. Political instability is likely to result in further delays to the implementation of key government spending projects, and we have made several downward revisions to our economic forecasts as a result. This includes our projection for real GDP growth, which we now forecast coming in at 4.5% in 2012, compared with 5.4% previously. Key Risks To Outlook As ever, given the economy's heavy dependence on oil, any sustained downturn in global energy prices would prove disastrous. With Brent crude prices trading above US$120/bbl in recent months, for the time being this risk appears minimal. Our forecasts assume that implementation of the government's development plans will be slow owing to the impact of bureaucratic gridlock. Nevertheless, the state certainly has the financial firepower to move forward with its capital spending plans if political compromises can be reached. Any improvement on this front would pose upside risks to our growth forecasts, as well as downside risks to our budget surplus projections.
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