Kuwait has become the latest country to receive the coveted emerging markets status from MSCI, in a move that is expected to result in billions of dollars of investor inflows into the Gulf country's stocks.

MSCI, the world's top equity indexing provider, said in a statement late on Tuesday that it would reclassify its MSCI Kuwait Index benchmark to emerging markets status.

Kuwait was previously classified as a frontier market. The upgrade, which comes following MSCI's latest market classification review, will see nine Kuwaiti blue chips included in MSCI's emerging markets benchmark from May next year, with an index weighting of 0.5 per cent .

MSCI's emerging markets index is tracked by about $1.9trn in investment funds globally.

The reclassification of Kuwait as an emerging market could see the country's stock market lure an additional $2.8bn in passive investment flows, according to NBK Capital. In comparison, China's much larger equity markets is expected to see $125bn in inflows as its presence in the emerging markets benchmark expands.

NBK Capital said that the upgrade for Kuwait could boost liquidity, corporate governance and earnings growth in the Gulf nation's equity market. The upgrade is subject to the Kuwait market meeting certain stipulations and reforms.

In the year through to May 31, Kuwaiti stocks returned 22 per cent, versus 4 per cent for emerging markets overall.

The Gulf bourse's biggest names include National Bank of Kuwait and global logistics business Agility.

source: FT

GDP growth in the region is projected to strengthen to 3.0 percent in 2018, and rise slightly.

higher in 2019-2020, with oil exporters continuing their recovery from the collapse of oil prices, and oil importers experiencing a smaller acceleration.

The outlook assumes continued policy reforms and oil prices remaining above their 2017 average. In 2018, growth in oil exporters is expected to rise substantially to 2.7 percent due to additional government spending, enabled by increased domestic revenues and firm oil prices.

In the GCC, 2018 growth will be further supported by higher fixed investment, bolstered by public investment programs and improved demand. Growth will remain stable during 2019-20, propelled by steady growth in private consumption, infrastructure investment programs like those related to the Dubai Expo 2020 or Qatar’s World Cup 2022, and the expiration of OPEC+ agreement.

Growth in non-GCC exporters is expected to be supported by higher capital expenditures.Fiscal balances in oil exporters are expected to improve as oil prices are forecast to stay firm and revenue-enhancing measures, such as VAT and energy subsidy reforms, are implemented.

These measures are expected to improve the non-oil share of government revenue in oil exporters. Higher oil prices are also expected to support remittance inflows (World Bank 2018j).

Growth in oil importers is expected to rise to 4.0 percent in 2018, as business and consumer confidence are spurred by business climate reforms and improving external demand.

Policies to relax foreign investment restrictions have supported higher capital flows, and are expected to boost foreign investment and trade flows, in part through relaxing financial constraints in firms(Kiendrebeogo and Minea 2017; Wood and Yang2016).

Tourism growth is also expected to improve upon stable security conditions. However, fiscal consolidation is expected to be an important headwind for activity among oil importers. In smaller oil importers (e.g., Jordan, Lebanon), external and fiscal imbalances remain a constraint to higher growth in the short-term. Reform programs, such as World Bank-supported initiatives to improve urban investment capacity or electricity performance, are expected to improve growth potential (World Bank 2017e, 2018k).

Similarly, public-private partnerships and bilateral agreements within the region are expected to support private sector participation in infrastructure investment, which benefits economic activity (Figure 2.4.2, Arezki et al. 2018; Calderon and Serven 2004).

Additional plans in energy subsidy reforms or tax revenue enhancement across oil importers will support further fiscal adjustment The short-term outlook in MENA is positive. Public-private partnerships are expected to support private sector participation in infrastructure investment.

However, geopolitical tensions may deter the recovery of tourism in oil importers.

Upside risks are associated with the possibility of higher-than-expected activity in key trading partners.

Risks

Risks to the outlook are diverse, but tilt to the downside. Key downside risks include renewed volatility in oil prices, an intensification of geopolitical tensions, and a slower-than-expected pace of reforms.

Nonetheless, favorable spillovers from stronger than expected activity in key trading partners and recovery in war-torn areas cannot be ruled out.

On the downside, the recent rise in oil prices may not be sustained in the short term, potentially due to higher-than-expected U.S. shale production This would reduce fiscal space in oil exporters and complicate fiscal management reform across many economies.

Tighter fiscal policy in oil exporters may lead to spillovers to oil importers via external linkages (e.g., FDI and remittances).

Volatility in oil prices may also affect oil importers through their current account exposure to higher oil prices.

The amplification of security concerns or escalation of geopolitical tensions may cloud oil importers’ tourism prospects, which have strengthened considerably in the past year. Intra- and interregional tensions in the region may also affect investor confidence and access to finance, such as through higher sovereign spreads.

Continued progress in reforms could face challenges to implementation. Among oil importers, potential social discontent about higher energy prices may lead to delayed implementation of fiscal adjustments. This issue may be further compounded by the high debt levels (in some cases exceeding 100 percent of GDP) among several economies in the region.

The loss of momentum in these reforms could negatively impact longer-term growth in the region.

On the upside, positive growth surprises in key advanced and emerging economy trading partners would provide an important support to growth in MENA.

Oil-importing economies in the Maghreb region are dependent on the Euro Area for trade, remittances, or financial flows. Stronger-thanexpected external demand could mitigate headwinds to growth associated with domestic policy uncertainty in smaller oil importers, or from potential spillovers associated with reduced FDI and remittance flows from GCC economies to oil importers.

Stronger-than-expected impacts from reconstruction programs and rising infrastructure investment in war-torn countries, such as Iraq, could lead to a sustained economic recovery. Associated spillover effects could unlock the potential for higher growth among other countries in the region.

This would also allow the restoration of access to health, water, or food (Devarajan and Mottaghi 2017a; World Bank 2018l) to these economies, and improve the conditions of neighboring host economies (e.g., Djibouti, Jordan, Lebanon) by providing more resources for public services for both host residents and refugees (Devarajan and Mottaghi 2017b).

Source: World Bank.

Emerging Markets have suffered in recent years due to low commodities prices and slower global demand. With signs that emerging markets were on the comeback trail in 2017, many analysts earlier this year believed that 2018 would be much brighter for Emerging Markets, however, there are signs that tailwinds are fading. The IMF said in its latest World Economic Outlook that this year and next, "growth in emerging market and developing economies will rise before leveling off.”

Our economists believe that there is a growing divergence between developed and developing economies. Among developing nations with economies with relatively solid fundamentals and driven by commodity exports—especially oil—growth is accelerating this year going into next. However, higher yields in the United States, the rise in energy prices and large exposure to foreign debt are putting pressure on some oil-importing countries and those with persistent macroeconomic imbalances. This mostly results in heightened volatility in their financial and equity markets, as well as sizeable currency depreciations. Let’s take a closer look at what’s expected for some of these countries in the coming year:

China

Global and domestic headwinds are expected to impact growth in H2 and beyond. The brewing full-blown trade war between China and the United States is the main downside risk to the country’s economic outlook. Domestic threats, however, including a cooling property market and financial deleveraging, are also building. FocusEconomics panelists forecast the economy will grow 6.5% in 2018, which is unchanged from last month’s forecast. In 2019, the economy is seen expanding 6.3%.

India

A normalization in cash conditions following the demonetization of late 2016 and the fading of disruptions from last year’s launch of the Goods and Services Tax should facilitate the economic recovery in FY 2018. Nonetheless, risks of fiscal slippage in the run-up to elections next year, concerns over the banking sector in India, increasing global trade tensions and higher oil prices all cloud prospects. Our panel expects GDP growth of 7.3% in FY 2018, which is unchanged from last month’s estimate, and 7.5% in FY 2019.

Russia

Growth in Russia is expected to pick up this year, thanks to strengthening private consumption and firmer oil prices. An improving labor market and low inflation should buoy household spending, while higher commodity prices will support export growth. That said, high geopolitical uncertainty and the possibility of further economic sanctions remain key risks to the outlook. FocusEconomics Consensus Forecast panelists see GDP expanding 1.7% in 2018, which is unchanged from last month’s forecast. In 2019, growth is seen steady at 1.7%.

Brazil

Brazil’s growth forecast was chopped for a third consecutive month as the truckers’ strike, a less supportive global backdrop and higher oil prices dent the country’s outlook. FocusEconomics panelists now see the Brazilian economy growing 1.7% this year, down 0.2 percentage points from last month’s forecast. A market-friendly outcome to October’s election remains critical to ensuring a sustainable recovery; however, this is far from certain. Next year, GDP is seen growing 2.5%.

Mexico

Household spending and exports are expected to drive growth this year in Mexico. Tight job markets—both domestically and stateside—and improved private-sector lending should support private consumption, while healthy factory output in the U.S. should bolster manufacturing exports. Uncertainty over NAFTA continues to weigh heavily on investment prospects, although the odds of reaching a deal have improved in recent weeks. On politics, most analysts currently expect AMLO to govern as a centrist. FocusEconomics panelists expect growth of 2.2% in 2018, down 0.1 percentage points from last month’s estimate. For 2019, panelists see growth stable at 2.2%.

Argentina

Despite a healthy first quarter, the pace of growth is expected to slow sharply this year. The loss of agricultural output following the severe drought; extremely high interest rates and currency volatility, which will weigh on investment decisions; and consumer spending constrained by low confidence and rapid inflation are seen driving this deceleration. Panelists participating in the LatinFocus Consensus Forecast foresee the economy expanding 0.4% in 2018, down 0.5 percentage points from last month’s forecast. For 2019, growth is expected to reach 1.9%.

Turkey

Economic growth in Turkey will likely weaken in the coming quarters, on tighter financial conditions, shaky investor sentiment and a higher oil import bill. Exchange rate volatility, geopolitical tensions, a gaping current account deficit and elevated inflation pose downside risks. FocusEconomics panelists expect growth of 4.2% this year, which is unchanged from last month’s estimate. They see growth of 3.5% in 2019.

Romania

Higher inflation and a loss in consumer confidence should lead to a marked slowdown in consumer spending this year, denting GDP growth in Romania. Although the expansion in fixed investment should gain some strength, low EU funds absorption will limit the extent of the acceleration. Downside risks stem from widening fiscal and current account deficits. FocusEconomics panelists expect growth of 4.1% for 2018, down 0.1 percentage points from last month’s forecast, and 3.6% in 2019.

Egypt

The Egyptian economy is expected to grow at a solid pace in FY 2019. This is due to higher investment on the back of increased government spending and an improved regulatory environment. Moreover, the external sector should continue to benefit from the weaker pound. However, large fiscal imbalances and the higher price of oil will weigh on prospects. FocusEconomics panelists expect GDP to expand 5.1% in FY 2019, which is unchanged from last month’s forecast, and 4.9% in FY 2020.

South Africa

Greater political stability and firm credit ratings bode well for the South African economy in 2018 as full-year economic prospects look set to largely ride out the weak first quarter. Real wage gains should support stronger household spending this year, while the government’s push to attract investment should bolster capital outlays. Nevertheless, fiscal slippage and a slow reform agenda are likely to constrain growth over the medium term. FocusEconomics analysts expect growth of 1.6% in 2018, down 0.3 percentage points from last month’s forecast, and 2.0% in 2019.

Nigeria

Higher oil prices, improved liquidity and increased public spending in the run-up to the 2019 elections should fuel faster growth this year in Nigeria. However, political uncertainty, as well as security concerns, continues to pose risks to economic activity. FocusEconomics panelists expect GDP to increase 2.4% in 2018, which is down 0.1 percentage points from last year’s projection. Next year, growth is seen rising to 2.9%.