Kuwait’s consumer sector eases; employment robust
NBK ECONOMIC REPORT
The consumer sector softened noticeably in recent months just as subsidy reforms took off, though household income growth and employment remained robust. Most consumer indicators revealed further softness in the third quarter of 2016. Consumer confidence weakened notably at the end of the summer, while card spending shrank y/y. Meanwhile, employment among Kuwaitis continues to provide support to the sector, thanks to steady government hiring.
Consumer spending came under pressure during the third quarter of 2016. Credit and debit card point-of-sale spending growth slid into negative territory for the first time on record, as spending shrank by 0.7 percent y/y in 3Q16. Even total spending including ATM withdrawals showed a comparable decline in growth of 0.6 percent y/y. Growth in consumer spending has been slowing since 4Q15, in tandem with the significant drop in oil prices, though until now this slowdown was relatively gradual.
Imports of consumer goods have also felt the softness in the consumer sector. Consumer imports grew by a mere 1.3 percent y/y during the 12 months through 2Q16; this is well below the 8.4 percent y/y growth posted last year. Most of the impact has been felt in imports of motor vehicles, which recorded an 11 percent decline y/y in 2Q16. This is a reflection of a struggling auto market and, more generally, weak durable goods purchases.
Consumer confidence also weakened noticeably in recent months. The overall ARA consumer confidence index stood at 89 in October 2016, after recording its lowest reading since 4Q08 at 83 in September.
Most of that decline is due to weakness in the current income and the current economic situation components, highlighting concerns over sustained low oil prices and the subsidy reforms being implemented. Household borrowing has also slowed more notably in recent months. Growth in personal facilities excluding credit for the purchase of securities slipped to 7.2 percent year-on-year (y/y) in September 2016 compared to 13.7 percent a year ago.
The average monthly net gain in such loans dropped to KD 50 million in the most recent six months, compared to an average of KD 123 million during 2015. Employment growth among Kuwaiti nationals has remained relatively supportive. The number of Kuwaiti civilian job entrants averaged around 4,039 a quarter over the four quarters ending in 2Q16. This represents a marked increase from around 3,000 job entrants two years earlier.
Of those, government sector hiring has been particularly strong; new government jobs nearly doubled to 2,726 a quarter during the same period. New private sector jobs retreated slightly, but continued to hold up relatively well, accounting for about a third of new civilian jobs. The slowdown in private sector employment is attributed to the government’s continuous efforts to clamp down on “phantom employment”.
The consumer sector is expected to continue to be soft into 2017, as consumers deal with further hikes in utility charges next year. While steady employment growth and modest gains in salaries in the government sector will continue to provide support to consumers, fiscal reforms will be a drag on the sector’s performance.
Bahrain has no sukuk plans in near future
Bahrain is not planning a sukuk issue “in the near future”, and any offer will depend on the shape of the Gulf nation’s budget for next year which is in the final stages of approval, the country’s central bank governor said yesterday. Rasheed Al-Maraj, speaking to reporters on the sidelines of an Islamic finance conference, also repeated that Bahrain is committed to continuing with its currency peg against the US dollar.
Islamic bank Al-Baraka eyes $300m sukuk issue
Al-Baraka Banking Group is targeting the sale of capital-boosting sukuk worth $300 million in the first quarter of 2017, the chief executive of the Bahrainbased Islamic lender, with operations in over a dozen countries, said yesterday. “You’ll see issuance of sukuk in the first quarter of 2017 around $300 million, and we are talking to some banks” about arranging it, Adnan Ahmed Yousef told reporters on the sidelines of an Islamic banking conference. Yousef added that the issue would enhance the bank’s core Tier 1 capital. AlBaraka had a total capital adequacy ratio - a key indicator of a bank’s financial health, which combines both Tier 1 and supplementary Tier 2 capital - of 15.15 percent as of June 30, according to a regulatory disclosure on its website.