FROM THE ECONOMIST INTELLIGENCE UNIT

Outlook for 2009-10

The emir will remain the ultimate political authority. Two elections within the space of 12 months, however, suggest that the long-running political differences between the government and parliament will continue in 2009-10.Kuwaiti foreign policy will remain founded on a long-standing strategic alliance with the US. Efforts at Gulf Co-operation Council integration will also continue.We forecast a budget deficit of 2.7% of GDP in fiscal year 2009/10, the first since 1998/99, as oil prices decline in 2009 and oil output is cut. The fiscal account is expected to return to a surplus of 4.2% of GDP in 2010/11.Owing to greater OPEC quota compliance and weakening demand for Kuwaiti exports, we forecast that real GDP—which we estimate grew by 8.5% in 2008—will contact by 0.7% in 2009, before growing again, by 4.4%, in 2010.We forecast that average consumer price inflation will fall to around 7% in 2009 and further to 5.6% the following year, because of sharp falls in commodity prices.As a result of a forecast 59% fall in oil prices in 2009, export earnings are expected to drop sharply. This will dramatically reduce the current-account surplus, which is forecast to average 11% of GDP a year in 2009-10.

Monthly review

Some 282 candidates have registered for the parliamentary election on May 16th. This will be Kuwait's third general election in as many years.Ahead of the election, a debate has been raging over how best to improve the political system, in particular over how to end the long-running conflict between the government and parliament, which led to the latter's dissolution.The government has been criticised for passing a contractionary 2009/10 budget given the global downturn. Calls for an expansionary fiscal policy, making use of Kuwait's past surpluses to help boost growth, have intensified.The pursuit of a proactive monetary policy by the Central Bank of Kuwait has been credited with ensuring that Kuwait has been shielded from the worst affects of the global financial and economic crisis.High oil prices in the first half of 2008/09 ensured that the fiscal account recorded a tenth successive surplus for the whole fiscal year, according to preliminary data from the Ministry of Finance.Thirty-six local investment companies have had their shares suspended on the Kuwait Stock Exchange after failing to publish their 2008 results on time.Latest data from the Central Bank have shown a resumption in banking sector lending, following months of stagnation.