Labour market activity hits 2-year high

ARA Consumer Confidence Index — March 2018

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.

ARA index in collaboration with Arab Times and under sponsorship of Lexus

Labour market activity at its highest

ARA Research & Consultancy has released its March 2018 Consumer Confidence Index, in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.

Discrepancy has dominated the indices, with the General Index, the Current Economic Situation Index and the Current Employment Opportunities Index gaining 3 points, 9 points and 33 points, respectively.

The labour market activity has reached its second highest level in 2 years.

The Current Personal Income Index and the Expected Personal Index maintained their previous ratios, while the Future Economic Situation Index dropped 4 points. Strikingly, the Purchase of Durable Goods Index plummeted 15 points, registering 120 points, compared with February.

ARA analysts investigated the discrepancy in the research findings which saw a rise in three indices, stability in two and a drop in another two. The analysts found that the findings reflect the main characteristics of the transitional economic phase which Kuwait, together with most oil-exporting countries, is going through.

This transitional phase is closely linked to the path of oil prices and their future expectations. This phase is extremely important, in view of the projects it involves which are essentially aimed at developing and diversifying Kuwait’s economic infrastructure.

This goal encompasses several strategic approaches integrated into one plan, with the specific nature of each project, its requirements and results being taken into consideration.

The most prominent headlines of these projects are:

I. The officials follow-up on investment in the oil and infrastructure sectors, as well as other sectors

II. The efforts to attract foreign capital for investment in Kuwait, which requires practical steps to be taken that would form a basis of success for investment. These include introducing new and advanced laws, adopting appropriate executive mechanisms to attract investment, a balanced tax law, and preparation of plans and projects that would help attract investment and facilitate the foreign companies’ choice of specific economic sectors.

III. The projects for privatisation and partnership with the private sector play a particularly important role in the programme for developing infrastructure and some economic utilities

IV. Establishing small and medium-sized companies and institutions. Noticeably, this economic trend has become global and has been executed even in some of the world’s most advanced countries. More attention and assistance should be dedicated to choosing the most suitable sectors, with emphasis on the need to provide productive resources and economic feasibility for these companies

V. Part of the economic development currently underway in Kuwait involves the practical legal and executive procedures that have been undertaken and executed to develop the Stock Exchange’s activity, on the basis of a scientific classification of companies registered in the financial market.

This transitional gradual development of the economic structure and the diversification of national income sources would objectively and gradually lead to a change in the structure of the labour force in general and the Kuwaiti workforce in particular. This will be manifested in their academic and professional qualifications and in greater employment of Kuwaitis in the private sector, joint companies between the public and private sector, and foreign businesses operating in Kuwait. These structural changes have affected and will further affect the psyche and convictions of consumers and induce a disparity in their views and levels of confidence.

Capital boosts confidence in current economic situation

Apart from the general official line, in the financial and economic spheres, which seeks to develop the economic structure, the current financial and economic developments continue to play a role in determining the level of consumer confidence. The most prominent current developments include:

I. The 2017-2018 budget deficit, which was expected to be over 4 billion Dinars, reached only 2.53 billion Dinars in the 11th month of the financial year

II. Relative stability in oil prices in March

III. A 36% drop in liquidity on the Stock Exchange in February

IV. The non-recovery of the real estate sector as the number of buildings built during the past year registered a growth of 1.6%, the lowest in 5 years

Undoubtedly, some of these developments have weighed on consumer confidence but have not affected their confidence in the current economic situation which scored 109 points, up 9 points from its previous ratio.

Remarkably, the ratio registered by the Capital, which is the centre of political, financial and economic decision-making, went up. It added 29 points to its previous ratio on the Current Economic Situation Index.

The other governorates registered better ratios on the same index, gaining between 7 and 13 points, save Mubarak El-Kabier which expressed reservation with a loss of 3 points. Additionally, the citizens boosted their ratio with 9 points and the Arab residents with 10 points, within a month.

The research findings indicate that most geographic and demographic segments expressed greater confidence in the current economic situation.

Ratios of medium income earners

down

Analysis of the research findings regarding the Future Economic Situation Index indicates some decline in confidence among those polled, with the index recording 104 points, down 4 points.

A set of factors may have weighed on the psyche of consumers regarding the future economic expectations, including:

I. Disparity in the fate of the oil prices expectations in the coming months

II. The losses sustained by the Stock Exchange every now and then

III. The non-recovery of the real estate sector which is a lever for several other sectors

IV. Failure to achieve desired successes in the industrial sector and other sectors

Amidst this climate, most ratios of the Future Economic Situation Index dropped, at varying degrees. The Capital lost 5 points and other governorates dropped 8 and 9 points, while two governorates displayed optimism by adding 9 and 11 points to their previous ratio.

The citizens dropped 9 points within a month, and remarkably the medium income earners dipped 37 points.

These figures indicate apprehensions among the participants in the research regarding the future economic situation.

Personal Income Index stable

Consumers maintained the February ratio for the Current Personal Income Index and the Expected Personal Income Index, registering 104 points and 101 points, respectively.

The new aspect in this context is the introduction of a tax on the remittances of foreign workers, a measure that some considered to be of a limited impact, given the administrative fees required to put it into effect.

On the other hand, the research findings showed that the Capital registered a rise on the Current Personal Income Index of 36 points and on the Expected Personal Income Index of 5 points, thus expressing its confidence in the current and future incomes. Meanwhile, the Ahmadi governorate recorded the highest ratio on the first index, 120 points, and 113 points on the Expected Personal Income Index.

The rise in the Dinar’s exchange rate against the US dollar to its highest level in 5 years has boosted the purchasing power of personal incomes which was also reinforced by the 5% increase in most salaries in 2017 - reflecting in confidence among consumers.

Labour market up in Capital

The Current Employment Opportunities Index posted 191 points in March, up 33 points compared with February. This is the second highest ratio it has recorded in 2 years.

Remarkably, the Capital registered 201 points on this index, a hike of 90 points, which reflects the level of activity in the labour market among the Capital’s population.

In this context, the government efforts to Kuwaitize the labour force

Purchase of Durable Goods back

to normal level

have been doubled, with the enactment of the latest law by the government whereby contracts with the foreign workers in the government sector will not be renewed. The aim is to reduce unemployment, even if its ratio is on an acceptable level. Additionally the Kuwaitization will decrease the volume of remittances sent abroad.

This highlights the need to develop the educational curricula at all levels to source the labour market needs from the Kuwaiti labour.

Remarkably, all governorates expressed satisfaction with the level of demand for vacancies, which reflects the activity in some economic sectors and some major investment projects.

The Purchase of Durable Goods Index registered 120 points, losing 15 points that it gained in February. This ratio is close to previous ones; a number of positive factors encourage purchasing, including:

I. Decline in prices of several goods and foodstuffs over the last three months

II. Decline in the annual financial inflation to its lowest level, 1%

III. The Kuwaiti Dinar registering its highest level against the US dollar in 5 years

However, on the other hand, the banking credit has dropped since September 2017, which reduced the liquidity mass and negatively affected the purchase of durable goods. This index lost 2 points among the citizens, and the Arab residents registered a drastic slump of 39 points.

At the geographic level, the purchasing rates gained 43 points in Farwaniyah and 23 points in Ahmadi.

The purchasing ratios fell by 14 points in Jahra and Mubarak El-Kabier governorates.

However, the registered drop in the purchase of durable goods index remains within acceptable levels compared to previous results and is expected to pick up again.