Table of Contents
GDP Interest Rate Inflation and CPI Unemployment Rate Foreign Direct Investments Introduction Conclusion References
Introduction
Every nation's prosperity is contingent on its social, political, and economic development. It relates equally to developed and developing states, with Kuwait representing the latter category. This Middle Eastern nation has a modest but relatively prosperous economy. It is situated in a desert, and its economy is supported by oil deposits and oil sales (Mohaddes & Pesaran, 2017). However, domestic political shocks, according to Burney, Mohaddes, Alawadhi, and Al-Musallam (2018), mitigate the economic benefits of oil resources to the state. Additionally, favorable weather conditions are believed to severely impact Kuwait's economy (Cashin, Mohaddes, & Raissi, 2017). The aforementioned information explains why the economy "was not able to advance as quickly as it could have" (Hassan, Shriaan, & Al-Mutairi, 2017, p. 24). Therefore, a more in-depth review of the country's GDP, interest rate, inflation and CPI, unemployment rate, and foreign direct investments is required for an accurate estimation of Kuwait's economy.
GDP
The GDP is one of the primary indices of the health of an economy. It implies that an increase in GDP will inevitably result in economic gains for the entire nation. Throughout its history, Kuwait has been unable to demonstrate a stable GDP because its ratio is dependent on numerous phenomena, oil prices being the most significant. According to Arslan, Bozgeyik, and Al-Azaki (2019), between 50 and 60 percent of Kuwait's GDP comes from oil earnings (p. 688). Consequently, any changes in oil prices have an appropriate effect on the economy of this country.
The preceding data explains the changes in the state's GDP ratio over its history. For instance, Kuwait experienced a period of continuous development in 2009, since its GDP increased every year thereafter (Almujamed, Tahat, Omran, & Dunne, 2017). However, the collapse in oil prices at the midpoint of 2014 led to a decline in GDP. As a result, as shown in Figure 1, it achieved a minimum of 109.42 billion USD in 2016. (Trading Economics, 2019c). This circumstance necessitated the search for alternate revenue streams in order to prevent future economic disasters. Figure 1 indicates that Kuwait has met this challenge since its GDP began to rise in 2017.
Annual Percentage Rate
The interest rate is a crucial and visible economic indicator for average citizens. The government is aware, and the Central Bank of Kuwait (CBK) strives to keep it low, despite the fact that this can be challenging in some instances. It relates to the notion that increased oil prices cause the interest rate to rise (Kisswani & Elian, 2017). The CBK counteracts this by tying the dinar to a basket of currencies instead of the dollar alone (NBK Economic Research Department, 2019). This adaptability makes it feasible to control the interest rate and respond to changing economic situations. As a result, the CBK is able to maintain this economic indicator at a very consistent level since it increased from 2% in 2015 to 3% in 2018. (NBK Economic Research Department, 2019, p. 4). Figure 2 corroborates this circumstance (Trading Economics, 2019e).
Inflation and the Consumer Price Index
As a measure of inflation, the consumer price index has a close relationship with inflation. The two indicators are significant for the economy and ordinary people because they reveal positive or negative price changes over time. Figure 3 demonstrates that since 2014, when it was 103 index points, the CPI has steadily increased, reaching 114.10 index points in June of this year (Trading Economics, 2019a).
In contrast, Figure 4 shows that between 2016 and 2018, the inflation rate approached zero, demonstrating an opposite trend (Trading Economics, 2019d). This change is regarded as beneficial considering the inflation rate in 2016 was 3.2%. (Fakir and Kanafani, 2017, p. 1). This decline could be viewed even more favorably because lower inflation rates reduce inflation uncertainty, which is beneficial for the economy and for individuals (Zuhd & Saleh, 2017). In addition, Paul, Ali, Soomro, Ali, and Abbas (2018) state that a 1% increase in inflation will increase economic growth by 0.019 percentage points (p. 161). Thus, it is possible to anticipate some positive effects of 2019's 1.2% inflation rate increase (Trading Economics, 2019d).
Unemployment Rate
This economic indicator represents the percentage of people who are not employed. This phenomenon may have both subjective and objective causes. A person does not work, for instance, because they either do not want to or cannot find a job. In addition, Doan and Erdoan (2016) assert that Arab nations are interdependent. It suggests that if a country's unemployment rate changes, its adjacent countries would likely experience the same changes (Doan & Erdoan, 2016). Consequently, it is legitimate to evaluate this economic indicator that draws attention to both the local and international affairs of a state. Indicators of Kuwait's unemployment rate have consistently been quite favorable, displaying 3.4% in 2011-2012. (Abdel-Khalek & Korayem, 2018). Thus, the nation exhibits a clear propensity to reduce its unemployment rate, which reached 2.06 percent in 2018, as shown in Figure 5. (Trading Economics, 2019f).
Direct Investments Abroad
As previously indicated, Kuwait's economy has already suffered due to its reliance on oil earnings. In this instance, a reduction in oil prices caused the state significant difficulties. Foreign direct investments were one of the new revenue sources that Kuwait needed to pursue. Figure 5 demonstrates that this economic segment is not stable because Kuwait’s FDI might fluctuate considerably over the course of a year (Trading Economics, 2019b). In conclusion, it appears that the greatest FDI ratio of 721 million dinars was attained in late 2012. (Trading Economics, 2019b). In addition, Figure 5 indicates that subsequent years witnessed a decline in investment quality, which might be attributed to volatile oil prices (World Investment Report, 2015). According to Haque, Patnaik, and Hashmi (2016), foreign direct investments result in "a positive contribution to the economic growth of the country" (p. 14). However, due to 2018's dismal FDI outcomes, Kuwait should reevaluate its approach to this economic sector.
Conclusion
Kuwait is an example of a developing Middle Eastern nation. Due to its geographical location, the country possesses vast oil reserves, allowing it to grow its economy quickly and efficiently. However, several external and local political shocks prohibit Kuwait from attaining considerable economic results. Simultaneously, the nation strives to enhance numerous aspects of its economy, including its GDP, interest rate, inflation and CPI, unemployment rate, and foreign direct investments.
References
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Almujamed, H., Tahat, Y., Omran, M., & Dunne, T. (2017). An examination of the evolution of accounting legislation and practices in Kuwait. 28(6), 14-28, Journal of Corporate Accounting & Finance.
Al-Fakir, D., & Kanafani, N. (2017). The inflation rate remained unchanged at 3.5% in December and averaged 3.2% in 2016 [PDF document]. Web.
Al-Zuhd, T. A. H., & Saleh, M. H. (2017). A generalized autoregressive conditional heteroscedasticity modeling approach to the inflation and inflation uncertainty nexus in Kuwait. 7(5), 198-203, International Journal of Economics and Financial Issues.
Arslan, I., Bozgeyik, Y., & Al-Azaki, Z. (2019). The function of bank loans in Kuwait's economic expansion. 9(2), 686-700. International Journal of Academic Research in Business and Social Sciences.
Burney, N. A., Mohaddes, K., Alawadhi, A., & Al-Musallam, M. (2018). The long-term growth dynamics and factors of Kuwait's economy. Economic Modelling, 71, 289-304.
Cashin, P., K. Mohaddes, and M. Raissi (2017). What kind of weather is it? The El Nio's macroeconomic effects. International Economics Journal 106, 37-54.
Doğan, C., & Erdoğan, S. (2016). MENA country-specific empirical analyses of unemployment hysteresis and natural rate of unemployment methodologies. The Optimum Journal of Economics and Management Sciences, 3(2), pages 41 to 50.
Haque, A., Patnaik, A. K., & Hashmi, S. Z. (2016). Foreign direct investment and economic growth: A case study of Kuwait 8(1) of the International Journal of Financial Research, pp. 9-15.
Hassan, M., Shriaan, A. A., & Al-Mutairi, A. k. (2017). A study of the Kuwaiti economy from 1995 to 2015. Asian Social Science, 13(12), 24-34.
Kisswani, K. M., & Elian, M. I. (2017). Exploring the relationship between oil prices and sectoral stock prices using nonlinear evidence from the Kuwait Stock Exchange. Economics & Finance, Cogent, 5(1), 1-17.
Mohaddes, K., & Pesaran, M. H. (2017). Oil prices and the global economy: Is this time different? Energy Economics, volume 65, pages 315-325.
Department of Economic Research at NBK (2019). Non-oil growth is anticipated to reach 3% in 2019, and the budgetary situation is anticipated to remain sustainable. [PDF document]. Web.
Paul, F. H., Ali, S. R., Soomro, R., Ali, Q., & Abbas, S. K. (2018). Exchange rate volatility and economic expansion: Kuwaiti evidence 13(6), 158-163, Eurasian Journal of Analytical Chemistry.
Commerce Economics (2019a). Index of consumer prices in Kuwait. [Graph] Web.
Commerce Economics (2019b). Foreign direct investments in Kuwait. [Graph]. Web.
Commerce Economics (2019c). Kuwait GDP. [Graph]. Web.
Commerce Economics (2019d). [Graph] The inflation rate in Kuwait. Web.
Commerce Economics (2019e). Kuwait interest rate. [Graph]. Web.
Commerce Economics (2019f). Kuwait unemployment rate. [Graph]. Web.
The Global Investment Report (2015). [PDF file] United Nations conference on trade and development (UNCTAD). Web.
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