Improved market activity boosts sentiment
ARA Consumer Confidence Index – March 2017
On account of its interest for monitoring the economic situation in Kuwait, “ARA Research & Consultancy” issues a monthly Consumer Confidence Index, in collaboration with the “Arab Times” newspaper and under the sponsorship of the “Lexus” trademark. The Consumer Confidence Index is considered as the only indicator that measures the Consumers’ psychological factors, based on people’s opinions and their prospects about the current economic situation and its future as well as their expectations regarding their financial conditions, and how that reflects on their purchasing power.
The Consumer Confidence Index is issued the first Sunday of each month, and is based on quantitative research on a sample of 500 people, distributed among Kuwaitis and Arab residents in different Governorates.
The study was conducted by telephone through a random call selection, taking into account that the distribution of the sample should be representative of the population in Kuwait.
The general Consumer Confidence Index is based on six indices which the researchers at ARA use to measure the level of the consumer satisfaction and optimism. These are: Current Economic Situation Index Expected Economic Situation Index Current Personal Income Index Expected Personal Income Index Current Employment Opportunities Index Purchase of Durables Index The indices’ results in a month basis measure the psychological state of consumers in Kuwait, which equal 100 points. This result (100 points) draws the line between optimism and pessimism among consumers. The more the index surpasses this point, the more the psychological state of consumers in Kuwait is considered to be inclined towards optimism. The more the index declines below this point, the more pessimistic the outlook.
Improved consumer market activity boosts confidence
ARA Research & Consultancy has released its March 2017 consumer confidence index, in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.
The General Index registered 98 points, up 3 points, taking advantage of the 18 point rise on the Purchase of Durable Goods Index, which reflects an improvement in consumer market activity. Thus, the March 2017 General Index hit the 100-point level recorded in March 2016.
The citizens posted 103 points, gaining 3 points.
The citizens displayed greater confidence on all indices, contrary to the negative trend that has prevailed in recent months; and consumer confidence has returned to its previous levels. Meanwhile, most ratios have declined among the Arab residents who scored 92 points on the General Index, losing 6 points.
The discrepancy between the positive and negative trends among the components of the study is due to a number of economic and financial developments that emerged during the last month.
The instability of oil prices, which fell from 53 dollars a barrel in late February to 48.5 dollars on 25 March and remained around 50 dollars in wait for the oil-producing countries from within and outside OPEC to take a decision on fixing and controlling the output cut. Kuwait needs the oil price to stabilize at 60 dollars a barrel to overcome the budget deficit and secure a 12% surplus.
The average daily oil production in Kuwait during February was 2.705 million barrels, despite the increase in the number of US rigs for the production of shale oil.
On the other hand, other economic sectors continued to suffer from the falling oil prices, as real estate sales dropped 16% on annual basis in January, and the value of stock exchange transactions plummeted 38% in February after a significant leap recorded in the first month of the year.
The sector is still facing further recession, recording the lowest level of transaction in six years and losing 33% of its trading in February.
Given this atmosphere, the governorates showed some disparities in the level of consumer confidence. Jahra came on top on the General Index with 118 points, a 2-point rise; Al-Ahmadi scored 103 points, up 8 points; and the Capital registered 101 points, gaining 1 point. Meanwhile, Mubarak El-Kabier came last with 85 points, despite an 8-point rise within a month.
Both economic situation
indices stable
Research findings revealed the stability of the two economic situation indices, reflecting the people and consumers’ adaptation to the current financial and economic conditions. The Current Economic Situation Index recorded 83 points, adding 1 point to its previous ratio. The Future Economic Situation Index reported 97 points, losing 1 point within a month and 4 points compared with March 2016.
The stability of consumer confidence in the current and future economic situation shows how the citizens and residents are able to cope with the repercussions of the falling oil prices and their will to overcome challenges and find appropriate solutions to them.
The steady level of consumer confidence in economic conditions may be partially due to the relative rise in oil prices and the strong financial solvency of Kuwait as well as the government’s investment in infrastructure and some new housing projects that help overcome economic recession.
Noticeably, the owners of private businesses tended to display more confidence in the current and future economic situation, as they scored 88 points on the first index, gaining 13 points, and 103 points on the second index, up 11 points within a month. This growing confidence among private business owners might have resulted from the expansion of their employment opportunities in the big projects that are being executed or from the opening-up of the development prospects in the private sector and the encouragement of small and medium-sized enterprises.
On the other hand, confidence has declined among low-income earners. They expressed pessimism in the current and future economic situation over the last months. Earners of a monthly household income of less than 450 Dinars scored 80 points on the Current Economic Situation Index, down 17 points. They also reported 97 points on the Future Economic Situation Index, losing 8 points from their previous ratio. Both indices also dropped 8 points each among the earners of a monthly income between 451 and 850 Dinars.
At the level of governorates, some ratios of the Current Economic Situation Index went up, as Al-Ahmadi, Jahra and the Capital gained 14, 13 and 7 points, respectively. Meanwhile, the ratios of other governorates fell by 5 to 7 points within a month.
Farwaniya’s confidence in personal income enhanced
The March 2017 Current Personal Income Index scored 90 points, exceeding its previous ratio with 11 points, the best in seven months.
The increased confidence in personal incomes might have resulted from several facts, including:
The relative stability of the Kuwaiti Dinar exchange rate versus the US dollar
Limiting the inflation rate to the region of 3.3% per annum
Despite the repercussions of the slump in oil prices, the government and private sectors kept the previous levels of salaries and wages.
The non-oil economic sector grew by 4.5% per annum with expectations of higher growth in coming years.
The government measures that included the gradual lifting of subsidies on gasoline, electricity and other goods and services, and the postponement of the implementation of certain taxes, especially the value-added tax which raises prices directly.
These and other factors have maintained the purchasing power of incomes and thus increased confidence. Farwaniya Governorate recorded 100 points on the Current Personal Income Index, a hike of 33 points within a month. Hawalli and the Capital also added 13 and 8 points, respectively.
The ratio of citizens rose to 100 points, up 15 points within a month.
The improved confidence in incomes helps expand consumer activity on the one hand, and encourages the initiative aimed at establishing small and medium-sized production and service projects on the other hand.
Expected Personal Income
Index stable
The Expected Personal Income Index overcame the economic and financial repercussions of the fall and instability of oil prices and faced the challenges of regional political and security situation. It recorded 102 points, the same as its previous ratio, thus maintaining one of the best ratios in 15 months. This comes despite the disparity among the research components in terms of their satisfaction with the future income, as some expressed confidence while others voiced some concern about the possibility of a decline in incomes or in the purchasing power. However, the general atmosphere and research findings reflected stability and confidence among consumers.
The citizens added 3 points to their previous ratio, while the Arab residents dropped 4 points within a month.
At the level of governorates, there was a significant rise in the confidence displayed by Mubarak El-Kabier, which gained 10 points. Meanwhile, the Capital kept its previous ratio.
Undoubtedly, the stability of the respondents’ confidence in the expected personal income is a positive element at this stage, in the face of financial and economic challenges.
Significant variation in labor
market activity
A combination of positive and negative factors had an impact on the labor market, whether in relation to the balance between supply and demand or the quality and professionalism of the workforce currently needed by the market.
The issue of employment opportunities in the market is subject to the general economic activity and to the conditions of each sector separately.
ARA Current Employment Opportunities Index registered 129 points, down 7 points compared with February and 11 points compared with March 2016.
The most prominent reasons for that include the following:
The decline in the government sector’s capacity of employment due to the fall in national income, which caused a budget deficit. The competent authorities are expected to receive more than 12,000 applications for employment by citizens this year, and the government is seeking to absorb two-thirds of that number maximum.
The retreat and stagnation of the real estate sector, which is the main engine for the non-oil economic sectors
The modest size and effectiveness of the nascent private sector, which is in transition, do not allow it to attract a large number of workers
Therefore, the nature of the stage has created a wide disparity in employment opportunities, as the citizens added 6 points to their previous ratio, while the Arab residents lost 41 points within a month.
The Current Employment Opportunities Index dropped 16 points among males, but rose 7 points among females.
At the level of governorates, the index fell 26 points in Hawalli, 19 points in Farwaniya, 18 points in the Capital, and 25 points in Jahra. Meanwhile, it increased by 22 points in Mubarak El-Kabier and 14 points in Al-Ahmadi.
The disparity in employment opportunities was also evident in professions, as the ratio rose by 46 points among private business owners, but slumped 46 points among the employees.
In the light of the current conditions, the labor market will remain subject to changes for a long time until the oil prices stabilize on the one hand and the process of economic structure renewal is accelerated on the other hand.
High consumption level in
Mubarak El-Kabier
The ARA Purchase of Durable Goods Index scored 120 points, up 18 points within a month. This is the best ratio in the past seven months, despite expectations of price hikes as a result of increasing the interest rates on loans on the one hand and the decline in the growth of personal loans on the other hand. However, there was obvious demand for purchase in some governorates and among certain demographic segments of the respondents.
Mubarak El-Kabier posted 116 points on the Purchase of Durable Goods Index, a hike of 59 points.
The ratio also recorded a 58-point upturn among the earners of a monthly income between 1,750 and 1,849 Dinars.
The index went up by 21, 10 and 23 points among the citizens, Arab residents and the females, respectively.
Despite this increase the ratio lost 27 points among private business owners and 5 points in the Capital.
The growth in the intention to buy and the improved consumer market activity reflect recovery in the economic field and show how the citizens and residents adapt to financial and economic developments.