Kuwait's GDP growth accelerates in Q2 on oil and non-oil sector gains

04/11/2025 03:56 AST

Preliminary official estimates show GDP expanding for the second consecutive quarter in Q2 2025, helped by the return of the oil sector to expansion and an acceleration in non-oil economic growth. Oil GDP recorded a marginal increase, the first in more than two years, as crude production increased in line with the unwinding of voluntary production cuts by OPEC-8. Non-oil activities, meanwhile, were boosted by an improvement in the construction, telecommunications, and real estate sectors. The near-term outlook is promising, with projects activity firm, bank credit growth robust and a business climate helped by slightly looser monetary conditions.

Oil sector returns to growth, set to accelerate further
Oil GDP grew by 0.2 percent y/y in Q2 2025, returning to growth for the first time since Q1 2023, after OPEC-8 commenced unwinding the group's voluntary production cuts in April 2025. The gain exactly reflects the increase in Kuwait's crude oil production over the same period - a rise of 0.2 percent y/y to an average of 2.418 mb/d in Q2, according to official sources.

Since then, OPEC-8 has proceeded to bring back supply at a fairly aggressive rate, restoring all of the 2.2 mb/d of voluntary cuts from 2023-2024 by the end of September - a year ahead of schedule - and starting on the second tranche of cuts (1.66 mb/d from May 2023) in October. For Kuwait, this implies crude production gains of 135 kb/d by end-Q3, before compensatory cuts are factored in, and a further 128 kb/d by mid-2026, assuming OPEC+ does not pause or reverse its resupply schedule in the months to come.

Non-oil GDP growth
The non-oil economy expanded by 3.1 percent y/y in Q2 2025, quickening over the 2 percent recorded in Q1 for a third consecutive quarter of positive annual gains. Growth in Q2 was led by an acceleration in the construction (12.6 percent y/y), telecommunications (8 percent), real estate (7.2 percent), and health & social work (5.9 percent) sectors. The construction sector is expected to remain a significant driver of non-oil GDP growth in the near term, as the government doubles down on its large pipeline of infrastructure projects, including the construction of new housing cities, road networks and the development of expanded power & water facilities.

Slightly offsetting the acceleration was softer growth in the three largest sectors of the non-oil economy: public administration & defense (+0.9 percent y/y), financial intermediation and insurance (+1.9 percent), and manufacturing (+0.3 percent y/y). Meanwhile, the wholesale & retail trade (-5.1 percent y/y), electricity & gas & water (-1.9 percent), personal & household services (-1.2) and 'other services' sectors (-1.1 percent) recorded declines in output.

Overall growth to accelerate further in 2025-26
Total GDP increased by 1.7 percent y/y in Q2 2025, cementing its return to positive growth following seven consecutive quarters of contraction in 2023-2024 due to prolonged oil production cuts. The outlook remains constructive thanks to rising crude output, a more favorable business environment and the government's reform drive. With interest rates down by 50 bps this year and potentially easing further in 2026, credit growth should be well-supported following robust levels this year (+6 percent ytd in September).

The boost from lower borrowing costs should also help spur further gains in the real estate sector, where activity jumped to an 11-year high in Q3 2025. Meanwhile, project awards activity has been solid this year and is on track to match 2024's multi-year-high, helped by the government's commitment to expand oil and power generation capacity and develop infrastructure more generally as noted above.

Nevertheless, downside risks to the outlook are present, with lower oil prices one of the more significant dynamics worth watching amid signs of an emerging supply glut in the oil markets, which could pressure the public finances and widen the fiscal deficit. The authorities have, however, through successful bond sales, managed to secure additional sources of financing to cover the funding gap.

The consumer sector is another weak point, with spending fairly subdued compared to recent years (central bank cards data show transactions -5.9 percent y/y in Q2 2025), but this trend could begin to unwind over the coming quarters. Overall, we see GDP expanding by 2.3 percent this year, a substantial improvement on 2024 (-2.6 percent), boosted by expansions in both the oil (+2.4 percent) and the non-oil sectors (+2.2 percent).

Kuwait Times