Drop in consumption weighs on sentiment

ARAt Consumer Confidence Index – August 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 Research & Consultancy has released its August 2018 consumer confidence index, in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.

The General Index registered 117 points, down 2 points within a month, and up 12 points compared with August 2017.

Based on the research findings, the 26-point slump in the ARA Purchase of Durable Goods Index within a month is the key reason for the slight decline in the August General Index.

What are the recent financial and economic developments that have pushed up some ratios among the geographic and demographic components of the research?

One of the most important financial developments was the fact that the average price of Kuwaiti oil hit $71.4 per barrel in August, 42.9% higher than the price forecast in the budget $45.

It is worth mentioning that the price of Kuwaiti oil in the last financial year – 2017/2018 – amounted to $54.5 per barrel.

In the light of the above mentioned facts, and if the current oil prices and volumes of export remain stable until the end of the financial year, the oil income, in addition to non-oil revenues estimated at 1.7 billion dinars, will reach 19.5 billion dinars. It is noteworthy that the estimated budget spending is 21.5 billion dinars, and thus the annual deficit hovers around 2 billion dinars.

The improvement in oil prices, boosted by the lower level of US oil reserves, was accompanied by some developments in a number of economic sectors, including:

1. The stock exchange has sustained some losses at some times and the level of transaction has gone down at other times; meanwhile, various indices have reported some gains, including a rise in foreign capital contribution to daily trading in stock markets.

2. On the other hand, the real estate sector is still encountering some difficulties that hinder its recovery, including high bank interest rates as well as the increase in supply over demand, specifically in the area of real estate investment. Despite these difficulties, real estate sales amounted to 774 million dinars in the second half of the year, an increase of 31% compared with the first half of this year.

Amid these positive and negative developments, the citizens posted 124 points on the General Index, up 3 points, and the Arab residents reported 103 points, losing 10 points within a month.

At the level of Governorates, AlAhmadi scored 127 points, up 9 points; and Jahra 126 points, down 10 points. The Capital recorded only 118 points, up 4 points.

Notably, the earners of a monthly income less than 450 dinars scored 93 points, down 15 points within a month.

However, the General Index remains robust, reflecting the good level of consumer confidence.

The economic situation has recently faced a number of challenges, most notably the escalation in the global commercial conflict to alarming levels, prompting the United States to take several measures against some countries to protect its interests.

These countries, topped by China, had to take counter measures, which heralded an atmosphere of a commercial conflict that poses an economic and financial threat to most world countries. There were also some concerns about the potential impact of this commercial conflict on the levels of global production and trade activity, which poses some risks to oil prices on the one hand and to the level of demand in world markets on the other hand.

At the internal Kuwaiti level, there were some positive developments, including: ■ The relative rise in oil prices ■ The bank credit has reached its highest level in five years

■ The relative recovery of the hotel sector, which registered an occupancy rate of 57% in 2017

The bank deposits grew by 4% per annum, while the growth rate of bank loans did not exceed 11.4%, which reduces the expected economic growth rate.

Transactions in the real estate sector grew by 18.1% in July.

Amid these economic developments, the Current Economic Situation Index reported 111 points, up 9 points within a month, and up 6 points within a year.

The confidence of the young people aged 18-35 in the current economic situation has significantly increased, registering 118 points, up 10 points within a month.

At the level of governorates, AlAhmadi came on top with 127 points; Jahra 123 points; and the Capital 115 points, up 15 points within a month.

On the other hand, the Future Economic Situation Index recorded 112 points, down 5 points compared with July.

It seems that the global commercial conflict and the fears of its expected economic repercussions, as well as its negative impact on oil markets, on the one hand, and the escalating political, security and military conflict in the region, on the other hand, have weighed on the psyche of consumers who have displayed lower confidence in the future economic situation.

For example, the young people aged 18-35 increased their ratio on the Current Economic Situation Index by 10 points, while their ratio on the Future Economic Situation Index fell by 5 points.

The Current and Expected Personal Income Indices reported 110 points each, losing 2 points each. However, the first index gained 8 points and the second 3 points on an annual basis.

Salaries and wages in Kuwait are expected to rise by 5% to 8% before the end of this year.

The average personal income in Kuwait amounts to $35,000 a year.

The monetary inflation is at its lowest level, recording 0.5% yearon-year in June. Thus, the Kuwaiti Dinar has maintained its purchasing power and its value against other currencies.

Therefore, the financial situation remains at its best, in terms of the dinar’s purchasing power and exchange rate. The slight decline in both personal income indices can thus be attributed mainly to the exceptional expenses in August, including the summer holiday and travel expenses incurred by citizens and residents. This places pressure on the family budget and leaves a psychological impact represented in dissatisfaction with the monthly personal income. The citizens registered 122 points on the Current Personal Income Index, up 9 points, but reported 110 points on the Expected Personal Income Index, down 2 points within a month.

At the level of Governorates, AlAhmadi came on top with 132 points on the Current Personal Income Index, but its ratio on the Expected Personal Income Index fell to 105 points.

Analyzing the research findings, it becomes clear that consumer confidence in the current personal income is semi-stable, while the general trend among consumers indicates some concerns about the future expectations.

The ARA Current Employment Opportunities Index scored 174 points, up 1 point within a month and a remarkable 35 points on an annual basis.

This relative stability in the labor market activity during August 2018 is consistent with the most important official statistics relating to the demographic structure of population and the size and diversity of the workforce in Kuwait. Studies by government departments have revealed the following:

■ Kuwait’s total population reached 4.561 million by the end of June 2018.

■ On that basis, Kuwait’s population is expected to grow by 2.8% annually.

■ The number of citizens increased by 2.4% per annum.

■ The total number of citizens in June 2018 reached 1.386 million, or 30.38% of the total population.

■ The total number of the employees reached 2.760 million.

■ The national workforce reached about 30% of the total Kuwaiti population.

■ The females account for 48.6% of the national workforce.

■ The total number of Kuwaitis employed reached 416,500, 78.9% (327,700) of whom are employed in the government sector.

■ The rate of unemployment among citizens amounted to 5.2%.

Analysis of these findings would reveal a general positive trend in the labor market activity on an annual basis, the beginning of an improvement in the percentage of citizens employed in the government sector and other sectors, including the national and foreign private sectors, as well as a tendency among citizens to establish small and medium-sized enterprises.

Credit growth at its lowest

The ARA Purchase of Durable Goods Index lost 26 points within a month, but it hiked 45 points compared with August 2017.

This drop is logical in August when the summer holiday and travel expenses become the priority in the budgets of Kuwaiti families as well as a large section of the expatriates.

However, the fall of credit growth to its lowest level in seven years and the increase in interest rates played an additional role in the decline in the Purchase of Durable Goods Index, despite the tangible rise in consumption activity on an annual basis.

Nevertheless, the market activity needs to be observed and followed up in the coming months to identify the level of consumer confidence and satisfaction.