Sentiment scales highest level in seven months
ARA Consumer Confidence Index – July 2019
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 July 2019 Consumer Confidence Index, in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.
The General Index registered 109 points, up 1 point, marking the highest ratio in seven months, despite a
10-point fall year on year.
Research findings revealed the convergence of various indices among all components of the research, would it be the positive trend in support of consumer confidence and the negative decline from the previous confidence level.
Jahra Governorate gained 11 points, and the Arab residents added 11 points to their previous ratio, thus showing greater confidence.
Meanwhile, the ratios of mediumincome earners and holders of intermediary education qualifications dropped 11 points each within a month.
An analysis of these data, which encompass opinions, convictions and levels of consumer confidence, would reveal the prevailing general mood, which ranges from concern over regional and international developments at different levels to coping with the events and relying on the internal positive achievements in Kuwait, especially at the financial and economic levels, not to mention the political and security stability in the country.
To elaborate the situation, we will point out the most prominent developments that negatively or positively affect the sentiment and confidence of respondents.
At the political and security level, the issue of the security of international navigation, the risks it faces, and the security implications and concerns associated has the greatest impact on the current regional and international situation. There are also the US economic sanctions on Iran and their consequences at both the domestic and regional levels.
At the economic and financial level, the course the oil market is taking and the fluctuating oil prices are the most pressing issues in both oil-producing and oil-consuming countries alike.
In Kuwait, for example, oil revenues account for 90% of the national income and cover 90% of expenditures. Therefore, the average annual price of oil and the stability of export levels are the key issues of interest to the official circles.
A. The slow global economic growth
B. The drop in China’s economic growth, which recorded the lowest quarterly rate in the second quarter of this year, which has not occurred for decades.
Moreover, the global trade conflict, especially between the US and China, created complexities. The Brexit and its negative consequences, losses, and the turmoil it has caused to international relations at various levels are also a pressing factor.
On the other hand, a number of domestic financial and economic developments emerged and contributed to enhancing consumer confidence.
■ If the level of Kuwaiti oil production remains unchanged and the average oil price stabilizes, the total annual oil revenues are then expected to reach 17.7 billion Dinars. Adding 1.9 billion Dinars in revenues of other sectors, revenues will increase to 19.6 billion Dinars. Thus, the budget deficit is expected to drop by about 33% compared with the previous financial year.
■ The recovery of the Stock Exchange, which registered the best performance in the Gulf this year.
■ The higher growth rate in real estate and construction sector.
These positive factors and others contributed to the stability of consumer confidence in the face of challenges.
ARA Current Economic Situation Index recorded 100 points, a 5-point rise within a month, thus achieving the highest ratio since December 2018 despite a 2-point drop within a year.
Most of the research components expressed satisfaction with the current economic situation to varying degrees.
At the level of governorates, Jahra scored 127 points, adding 20 points to its previous ratio.
Ahmadi also rose 8 points, the Capital and Farwaniya rose 7 points each, while Mubarak Al-Kabir fell 9 points compared with June.
The disparity between the ratios of different categories and governorates is normal, due to the demographic diversity of the population as well as the diversity and spread of economic sectors. Some sectors sometimes maintain the level of their production, while others increase their production, and this is reflected in the level of consumer confidence.
The citizens kept their ratio for the current economic situation index stable at 107 points, while the Arab residents increased their ratio by 14 points within a month.
The earners of a monthly household income that ranges from 450 to 849 Dinars increased 25 points within a month.
The conclusion of research findings shows that the level of consumer confidence in the current economic situation has increased.
ARA Future Economic Situation Index fell to 103 points, a loss of 3 three points on a monthly basis and 9 points compared with July 2018.
Undoubtedly, the decline in the average oil price last June to $62.7, which marked a 5.8% fall compared with the $68.5 average price in the financial year 2018/2019, has weighed on the future economic outlook among the respondents.
In addition to the instability of oil prices, the regional conflicts, the global trade conflict and the low global growth have been negative factors for consumer confidence.
However, a number of positive factors have reduced the negatives and maintained the level of consumer confidence. These factors mainly included:
A. The Stock Exchange’s liquidity during the first half of the year increased by 166% compared with the first half of last year.
B. The volume of real estate transactions increased by 23.9% year on year.
C. The GDP grew by 2.6% during the first quarter of the year compared with the previous year.
In the midst of these positive and negative factors, the citizens reported 104 points on the Future Economic Situation Index, an 11-point within a month. Thus, they expressed concern about the future economic situation.
ARA Current Personal Income Index registered 101 points, down 8 points within a month and 9 points year on year.
The vast majority of the components of the research expressed dissatisfaction with the current level of personal income, as the citizens, the females and the medium-income earners lost 120, 27 and 41 points, respectively, within a month.
At the level of governorates, Mubarak Al-Kabir, Farwaniya, Ahmadi and the Capital dropped 34, 23, 18 and 10 points, respectively. Meanwhile, Jahra and Hawalli gained 21 and 4 points, respectively.
The semi-unanimousness on dissatisfaction with the personal incomes is mainly due to the shy rise in salaries in the government sector over the past three years, and the limited and incomprehensive improvement in salaries in the private sector.
Based on official data published, we noticed the following:
■ The average salary of the citizens working in the government sector reached 1,778 Dinars for males and 1,272 Dinars for females.
The average salary of the foreign workers in the government sector did not exceed 724 Dinars for males and 664 Dinars for females.
The average salary of the citizens working in the private sector reached 1,411 Dinars for males and 861 Dinars for females.
The average salary of the foreign workers in the private sector reached 269 Dinars for males and 386 Dinars for females.
These facts need more attention to be paid to the issue of wages.
The Expected Personal Income Index was affected by the negative mood of most of the research components. It registered 107 points, down 3 points both on monthly and annual bases.
It seems that the recovery of real estate transactions, given the distinctive importance of this sector, and the recovery of the Stock Exchange activity could not help overcome the predominant negative trend among most components of the research with regard to the current and expected personal incomes.
ARA Current Employment Opportunities Index reported 153 points, adding 17 points to its previous ratio, and losing 20 points compared with July 2018.
However, the index’s current ratio is the highest in 6 months.
The young people’s ratio gained 33 points, and the males increased 36 points, while the females fell 10 points.
As for the working groups, there was a high demand in the labor market for workers with a monthly wage of less than 450 Dinars. The ratio of this segment of workers rose to 172 points, up 59 points within a month. Meanwhile, the ratio of the high wage earners fell 7 points.
At the level of governorates, Jahra increased 39 points, Farwaniya 31 points, Mubarak Al-Kabier 22 points, Hawalli 9 points, and the Capital 11 points.
This semi-unanimity on the increased consumer confidence in the employment opportunities reflects the growth taking place in various economic sectors in Kuwait.
The central issue in this context remains to be the Kuwaitization of workforce in the government sector, and encouraging citizens to join the private sector while ensuring their qualification and productivity is improved.
ARA Purchase of Durable Goods Index posted 114 points, up 7 points within a month, but a 48-point slump year on year.
The increase in consumption depends primarily on the purchasing power of the Kuwaiti Dinar, the real economic growth achieved, and the low monetary inflation.
The month of July marks the beginning of the tourism and travel season and its subsequent expenses.
The citizens scored 136 points on the Purchase of Durable Goods Index, up 1 point, and the Arab residents reported 66 points, an increase of 16 points within a month.
Consumption intent was higher among the males who scored 132 points, up 21 points, while the females fell 13 points.
The Capital raised its previous ratio by 13 points, the highest among governorates, followed by Farwaniya which gained 11 points.
The rise in the Purchase of Durable Goods Index over a month should not conceal the decline in consumption compared with July 2018.