Consumer sentiment falls amid COVID-19

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 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.

Consumer confidence amid Covid-19 and plunge in oil

prices

ARA Research & Consultancy has released its Consumer Confidence Index for April 2020 in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.

The General Index registered 102 points, losing 2 points within a month and 4 points compared with April 2019.

Consumers maintained their confidence “despite the prominent disparity between citizens and residents” in the face of the negative and highly complicated developments, the most important of which are the Covid-19 outbreak and the drop in US oil prices to unexpected and unprecedented negative figures.

Regarding Covid-19, specialized institutes and research institutions have not yet been able to find a vaccine, and the virus is still killing people in all continents and had caused the world financial losses exceeding $9 trillion by the 1st of April.

Moreover, the virus outbreak had indirect repercussions, as it has affected numerous economic sectors worldwide. It has also impacted oil markets and prices, given the oil oversupply which has continued for a long while.

Most oil producing countries, including OPEC member states, the US, Mexico and others, had agreed to cut oil production sharply in order to reduce the accumulated global stock in the US, China and other countries. That was aimed at restoring some balance between supply and demand and improving as well as stabilizing prices. However, Covid-19 emerged, halting the economy and turning oil into a commodity looking for customers.

Oil prices are expected to rise slowly due to the following factors:

The significant drop in US fossil oil production

The start of implementation of the oil output cut agreements

The start of implementation of the decisions taken by several European and Asian countries to resume production and resuscitate their economies, even though in a gradual manner

These circumstances weigh on the employment stability of unqualified labor in the construction sector and restaurants, and other sector mainly employing the expatriate workers. Despite the government support, humane treatment and guarantees provided, expatriates have been concerned that they would lose their livelihoods. They have also been concerned about their own safety.

The research findings showed that citizens in general have high confidence in the health and safety measures taken by the Kuwaiti government. However, the expatriates have feelings of instability despite the official attention given to them. This conclusion is reflected in the ratios of confidence of Kuwaitis, as they scored 116 points on the General Index, while the Arab residents dropped to 78 points.

The Arab residents also lost 25 points within a month on the Current Employment Opportunities Index.

The ratios recorded amid the difficult circumstances faced by many countries and peoples around the world reflect the official efforts exerted by the Kuwaiti authorities and the financial and administrative capabilities they have. The ratios also illustrate how consumers are confident despite the exceptional difficulties.

Economy must be reformed,

budget must be cut

ARA Current Economic Situation Index scored 105 points, losing 3 points within a month and gaining 7 points compared with April 2019.

The Future Economic Situation Index reported 113 points, down 2 points within a month and up 9 points within a year.

These ratios reflect relatively stable consumer confidence, despite some disparities among the respondents as well as the risks and repercussions of Covid-19 on the financial and economic conditions. Here are some examples:

The heavy losses sustained due to the plunge in oil prices

The hefty losses sustained by the global and regional stock exchanges, including the Kuwait Stock Exchange

The economic downturn and its financial, operational and social repercussions

The inability of medium and small enterprises and institutions to face the current burdens, in addition to the rigid economic activity

The steady rise in the budget deficit and the difficulties encountered by some sectors, including transportation, hotels, restaurants, cafes, trade among others

Despite this challenging situation, consumer confidence remains solid, robust, and fortified by the strong Kuwaiti financial situation, including the sovereign funds and the revenues of foreign investments.

Therefore, the authorities must continue their endeavours to face these difficult and exceptional circumstances.

Amid these conditions, the consumer confidence research revealed two phenomena that emerged in Kuwait in April 2020.

The first is that consumer confidence has maintained its previous ratios.

The second is the disparity in the levels of confidence and the ratios reported by the various segments of the research.

At the level of governorates, Mubarak El-Kabier, Jahra and Farwaniya boosted their ratios on the Current Economic Situation Index with 23, 8 and 4 points, respectively.

Meanwhile, the ratios of other governorates dropped between a maximum of 18 points and a minimum of 1 point.

The scores by the citizens and Arab residents on the Current Economic Situation Index were the most indicative among the research respondents, with the citizens posting 125 points, and the Arab residents 75 points.

Economic downturn, salaries

and wages

The Current Personal Income Index registered 87 points, losing 5 points within a month and 10 points within a year.

Meanwhile, the Expected Personal Income Index reported 111 points, losing 1 point within a month, but gaining 11 points year on year.

The convergence of ratios despite the difficult and exceptional circumstances and the stability of the Expected Personal Income Index show how consumers are reassured about the future of Kuwait’s economic and financial situation – which is the cornerstone in securing good personal incomes in the future.

This fact does not negate the wide discrepancy that sometimes occurs between some segments of the research. This is a natural phenomenon that reflects the different conditions, circumstances and priorities of the respondents.

No scientific authority has so far been able to determine accurately when and how the Covid-19 epidemic will be overcome and at what cost.

It is necessary to be measure the repercussion on the economic and financial activities in order to identify the losses and how to mitigate the situation, including the risks of unemployment and the reduction of salaries and wages or the freezing of some of them.