Economic Insights

Domestic credit growth remained solid in Q2 (+2.9%), driving up the YTD increase to 4.6%. Growth in Q2 was lifted by credit for securities purchase and lending to banks and financial institutions while business credit remained broadly resilient and household credit growth improved. Business credit can continue benefiting from the overall improving trend in project awards as seen in 2023-2024, despite a relatively soft H1 this year, and especially in the context of the government’s debt issuance plans that should enable higher spending on projects. The recent sharp weakness in the US labor market has materially raised the odds for interest rate cuts in the US, although a pick-up in US inflation could continue to complicate matters for the Fed. Lower interest rates in Kuwait should support credit growth, especially household, but the game changer for household credit will be the potential approval of a housing finance law.

Within business lending (+1.5% q/q, +4.1% YTD), growth so far this year has been broad-based with ‘other services’ (+7.3% YTD), ‘trade’ (+5.9%), and ‘industry’ (+4.5%) in the lead. The heavyweight real estate sector continued its recovery, lifting YTD growth to 3.5%. On the other hand, ‘construction’, after surging by a CAGR of 16% over 2022-2024, has taken a breather in the last few quarters, with y/y growth falling to just 2.3% while the oil/gas sector disappointed after displaying some early signs of a recovery in late-2024 and early-2025. For project awards, while Q1 and Q2 were both relatively weak, these followed three strong quarters while y/y growth remains positive at 12%. Meanwhile, household credit continued its gradual recovery with growth strengthening to 0.9% q/q, which lifted the y/y increase to 3.5%, more than double the 1.5% recorded in 2023. We note that in both 2023 and 2024, household credit was much stronger in the second half of the year than in the first half. As mentioned before, credit growth in Q2 was strongly lifted by credit for securities purchase and lending to banks and financial institutions, which in fact have accounted for nearly half of the total credit growth YTD (4.6%).

Private-sector deposits driving overall deposit growth as government deposits continued to drop 

Resident deposits inched higher in Q2 lifting YTD growth to 1.7%. This continued to be driven by private-sector deposits (78% of total deposits), which increased by 1.4% q/q (3.4% YTD). The weakness in government deposits continued, as they fell for the third straight quarter, taking their y/y decrease to 11% after increasing by double digits for most of the past three years. Within private-sector KD deposits, CASA have outstripped time deposits for the second straight quarter, and are up by 4.2% YTD. We note that non-resident deposits (8% of total deposits), after falling for three straight years (down a sharp 22% in 2024), made a come-back surging by 38% (KD 1.3 billion) YTD.

US labor market weakness raised odds for US rate cuts but an inflation pick-up could still complicate matters

Following the recent weakness in the US labor market, the futures market is now indicating two-to-three rate cuts before year-end. However, a pick-up in US inflation due to tariffs or upcoming data points showing better-than-feared deterioration in the labor market could put the Fed back in a wait-and-see mode.

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