Goldman Sacks Kuwait

In a recent report by Goldman Sachs & Company on its economic outlook on the region and specifically Kuwait for 2010, Goldman drew a very pessimistic picture of what it perceives the future holds for Kuwait. According to the report Dubai and Kuwait will lag behind Saudi Arabia, Qatar, and Abu Dhabi in any recovery in the near future. It estimated that Qatar would grow the most between 7-7.5% and Saudi Arabia will grow at 4.5%. While both the economies of UAE and Kuwait contracted by around 2.5% this year, UAE is expected to grow at 2% in 2010 driven by Abu Dhabi. After much deliberation, I simply don’t agree with Goldman’s estimates. Why would Kuwait lag?

FACTS:

1. Goldman Sachs forecasts oil at $90 in 2010 and $110 in 2011. According to a report by Reuters, Kuwait’s GDP is forecasted to grow by 17% in 2010 driven by the rally in oil prices and investment in infrastructure projects. With the surge in oil prices from the December 2008 lows of $32, and oil being a main source of revenue for the country, Kuwait’s GDP is expected to grow the most, by 16.9%, followed by Qatar, Saudi Arabia, and UAE at 8.3%, 7%, and 5% respectively. To note, the estimates were based on a conservative oil price projection of $50/ barrel throughout the budgetary period. With the expected surge in oil prices for 2010 and the OPEC consensus of no change in oil production quotas, crude oil for January delivery trading at $73.38 a barrel, I believe that Goldman undermined the effect of the projected “$90” on the country’s GDP.

2. The political victory and vote of support that led to the survival of both Kuwait’s Prime Minister and Interior Minister from a non-cooperation vote in the parliament has been praised as a victory of democracy and turning point in the political field that is expected to bring with it’s a transition in the political system and passage of key economic policy changes and developmental projects. Kuwait is at REST. No ouster, no dissolution of parliament, and hopefully no standoffs between the government and MP’s anytime soon.

3. Global Investment House reaching formal agreements with all of its financiers to restructure $1.7 billion in debt has brought a close to uncertainty and boosted investor confidence and expectations of reaching a similar agreement on Wednesday when the Investment Dar sits down with its creditors. That, coupled with the $1.1 billion or 37% profit the KIA made from its successful investment in Citigroup.

Political rest, surging oil prices, and investor confidence finally kicking-in with the noticeable increase in trading volume in the KSE will help lead Kuwait to break the barriers Goldman has set for Kuwait and an expected rally in the KSE.END