Supply chain & trade disruptions. GCC US Treasury holdings. Kuwait banking sector. GCC inflation.
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Weekly Insights 22 Nov 2024: Kuwait’s inflation dips in Oct amid a strong banking sector & hike in US Treasury holdings
1. Trump’s proposed trade tariffs could affect trade movements negatively, even as supply chain issues & trade disruptions continue
- Prolonged wars have been causing shipping disruptions, rise increase in shipping rates and supply chain pressures.
- With the Trump Presidency threatening to increase trade tariffs, higher inflation is a given when businesses pass on the costs to consumers. The unknowns are whether these policies will be adopted to the extent mentioned during the campaign trails and on how these will be implemented.
- Supply chain disruptions increased in Aug-Sep, as per the Fed’s Global Supply Chain Pressure Index (GSCPI) before slipping below the historical average in Oct (-0.32 from 0.11 and 0.22 in Sep & Aug respectively); the peak was recorded at 4.33 in Dec 2021
- Shipping containers are still being re-routed including trade that would normally go through the Red Sea: The IMF’s PortWatch platform shows that, compared to a year ago, shipping volume (7-day moving average) via Suez Canal was down 78% yoy as of 19th Nov, down by 19% from end-Q3, and down by 68% ytd. Asia-Europe route is the most affected (both time & costs).
- Shipping costs are rising. freight rates via major shipping routes are much higher compared to the first week of 2023, though not yet close to crisis levels. Air freight rates are becoming more competitive – with air cargo seen as a back-up option.
2. Kuwait’s holdings of US Treasuries surged to a 21-month high at end-Q3; the UAE reduced its holdings to USD 71.9bn
- Foreign holdings of Treasuries increased for the 5th month in a row, rising to a record level of USD 8.673trn in Aug (Jul: USD 8.5trn).
- Japan and China both offloaded US Treasuries in Sep, taking their overall holdings to USD 1.123trn and USD 772bn respectively. China also posted a 1.1% qoq drop.
- With return on Treasuries rising to a 2.5 year high in mid-Sep, Japanese and Chinese investors sold in Jul-Sep (a record high) USD 61.9bn and USD 51.3bn (second largest amount till date) respectively.
- From the region, Saudi Arabia stands as the 17th largest investor in US Treasuries, with USD 143.9bn in Aug – highest since Mar 2020. Kuwait’s holdings rose to USD 48.3bn in Sep, the most since end-2022. UAE holdings fell by 9.2% mom to USD 71.9bn in Sep.
- GCC nations have been increasing US Treasuries holdings this year. Compared to end-2023, Kuwait increased their holdings (by 4.2%) alongside Saudi Arabia and UAE whose holdings grew by 9.0% and 12.4% respectively.
3. Kuwait’s banking sector performance remains strong in 2024
- Money supply (M2) grew by 3.2% yoy and 0.2% mom to KWD 40.6bn in Oct. It has grown by 4.1% year-to-date (ytd).
- Deposits have grown this year: year-to-date, private sector deposits were up by 4.5% alongside a 10% uptick in government deposits; however, the volatile public institutions deposits plunged 14.1%. Private sector deposits accounted for more than 78% of total deposits in Oct 2024.
- Credit growth to the private sector has been strong, with claims growing 3.8% and by 4.0% ytd in Oct. However, claims on both government and public institutions have been declining – it fell by 32.6% and 6.7% ytd this year.
- Credit to households ticked up, up 2.4% ytd, alongside business credit gaining 3.6% ytd. By sector, real estate accounted for a lion’s share of credit facilities, the construction sector was one of the fastest growing, in addition to trade.
4. GCC headline inflation is relatively low vs MENA peers: Kuwait’s 2.4% in Oct was the highest across GCC (though the lowest since Sep 2020 in Kuwait) vs 15.7% in Lebanon & 26.5% in Egypt. Food inflation higher than headline in 3 of 6 GCC nations; Bahrain & Qatar posted a drop in Sep food prices; Dubai inflation fell to the lowest in 14 months in Oct (2.38%)
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