Sentiment relatively stable during year

ARA Consumer Confidence Index – October 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.

Consumer confidence in Kuwait relatively stable throughout the year

ARA Research & Consultancy has released its Consumer Confidence Index for October 2019 in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.

The General Index registered 107 points, adding 1 point to its previous ratio but losing 4 points compared with October 2018.

Scrutiny of the ratios recorded in Kuwait over the course of the year shows that the highest ratio on the General Index, 112 points, was reported in November 2018, while the lowest, approximately 103 points, was recorded in January, March, and April 2019.

This means that the difference in consumer confidence level did not exceed 9 points during that 12-month period.

The relative stability of consumer confidence in Kuwait during the year was achieved at a time of difficult political, geopolitical, and security concerns as well as an unexpected decline in oil prices, which had an impact on the size of the national income of oil-exporting countries. Moreover, expectations of a drop in the growth rate of the global economy also increased for the following reasons:

1. The global trade conflict and the resumption by some countries of a policy of trade protectionism. The most prominent examples in this regard are the US-China trade conflict and US relations with the EU and Canada, its closest ally.

2. The difficulties posed by Brexit and the potential negative repercussions on the economies of both Britain and the EU. Brexit might also have a negative financial and economic impact on several other countries in different continents.

Despite these negative international and regional developments, which entail various risks, consumers in Kuwait have exhibited relatively and reasonably stable confidence in the general economic and financial situation. The General Index has not undergone any sudden changes or major declines and has instead weathered the challenges.

This stability in consumer confidence and convictions is based on several factors and constants, most notably:

• The wise, principled, and pragmatic policy adopted by the official authorities in Kuwait towards various regional issues.

• The robust financial capacity of Kuwait and the role of national banks in helping finance some investment projects.

• The long-term policy adopted by the Kuwaiti authorities towards financial and economic affairs, including infrastructure investment projects and partnerships with the private sector.

These factors are among many that maintained overall consumer confidence throughout the year.

Although the consumer confidence study has revealed the relative convergence of General Index ratios on an annual basis, this does not negate the emergence of some disparities in the level of confidence exhibited by various research components, including the following:

The ratio of citizens fell 5 points on the General Index, while the ratio of Arab residents rose by 10 points.

At the level of governorates, the Capital dropped 7 points, while Farwaniya and Mubarak El-Kabier each lost 5 points. By contrast, the ratios of the other governorates rose between 3 and 7 points.

High-income people complained the most about the economic situation

The Current and Future Economic Situation Indices reported a fall on both a monthly and annual basis. For instance, the Current Economic Situation Index registered 98 points, losing 2 points within a month and 5 points within a year.

Similarly, the Future Economic Situation Index reported 109 points, losing 1 point within a month and 7 points within a year.

Analysis of the research findings and figures – in an attempt to understand the varied stances of the research components and to identify the extent to which they are satisfied with and confident in the economic situation – shows some remarkable variations, including the following:

The ratios of both economic situation indices slumped by 30 and 31 points within a month among the earners of a monthly income ranging between 2,450 and 2,849 Dinars.

By contrast, low-income earners expressed satisfaction with the economic situation, although the ratio of young people aged 18-35 on the Current Economic Situation Index fell by 8 points.

At the level of governorates, there was a clear divergence, as the Capital reported 115 points on the Current Economic Situation Index, gaining 2 points, but it lost 12 points on the Future Economic Situation Index within a month. Similarly, Ahmadi gained 12 points on the Current Economic Situation Index but dropped 2 points on the Future Economic Situation Index.

The citizens lost 6 and 10 points on both indices, respectively. Conversely, Arab residents added 5 and 6 points.

The divergence in the views of some research components and their confidence in the economic situation is related to their economic position, their professions, and the sectors in which they work. The success or failure of these sectors reflects directly on the respondents.

However, the main trends, convictions and orientations in public opinion continue to be directly determined by the overall economic situation

The current economic phase is thus unclear and is linked to factors such as oil prices, the rate of global economic growth, the trade conflict, and multifaceted geopolitical tension.

Young people were dissatisfied with their personal incomes

The ARA Current Personal Income Index scored 102 points, down 3 points within a month and up 1 point within a year.

These findings indicate the relative stability of incomes among consumers, both on a monthly and annual basis. However, closer scrutiny of the figures shows there was sometimes a wide variation among the respondents.

For instance, the young people aged 18-35 registered 102 points, a 16-point fall within a month, thus expressing their dissatisfaction at the level of personal incomes. Similarly, the ratios of citizens fell 16 points within a month.

At the level of governorates, the ratios of Ahmadi and the Capital fell 13 and 12 points, respectively.

However, there was a remarkable rise in the Current Personal Income Index among educationally and/or professionally unqualified workers who earn less than 450 Dinars per month. Their ratios grew 32 points within a month. By contrast, the ratios of high-income earners plummeted by an unprecedented 55 points.

These figures raise an important question as to the reasons for the noticeable rise in the Current Personal Income Index among low-income earners and the significant drop among high-income earners.

It seems that the rise in the liquidity of the real estate sector in September, which amounted to 55% year-on-year, and the concomitant increase in demand for a workforce in this sector and other associated industrial, commercial, and service sectors have raised the incomes of those segments of workers, leading them to express satisfaction with their incomes.

Factors affecting consumer confidence

ARA consumer confidence research comprises six indices: four address respondents’ views on the current economic situation, personal incomes, employment opportunities, and consumption activity, while the other two focus on respondents’ expectations regarding future personal incomes and economic situation.

These indices are then summarized and translated into the General Index.

The diversity between current confidence and future expectations enriches the research by combining the present and the future to fully elucidate the beliefs and expectations of respondents.

As such, consumers’ responses on indices that address the current situation are influenced by direct concrete factors relating to their respective situations, while indices related to future prospects reflect the extent to which the respondents are optimistic or pessimistic in the light of the general findings on the one hand and their own circumstances on the other.

Consequently, there is a discrepancy in the level of confidence between their current and future situations.

The first index reported 102 points, while the Expected Personal Income Index reported 112 points.

This approach to exploring consumer confidence has made it possible to shed light on consumers’ beliefs, their current confidence, and their future expectations.

Signs of change in workforce structure

The ARA Current Employment Opportunities Index registered 139 points, gaining 8 points within a month but down 21 points year on year.

However, the research findings revealed a sharp variation between the various ratios:

At the level of governorates, Jahra and Hawalli gained 51 and 22 points, respectively, while Mubarak El-Kabier and the Capital lost 7 and 5 points, respectively.

At the level of educational qualifications, the ratio of respondents holding lower educational qualifications hiked 53 points, while the respondents with intermediary qualifications lost 9 points within a month.

These differences in ratios reflect new changes in the labor market, which have increased as a result of several factors, including the uneven development in economic sectors and the level of technological advancement of production tools and means.

Respondents almost unanimous in pushing up consumption

The ARA Purchase of Durable Goods Index scored 96 points, up 10 points within a month but down 2 points within a year.

The research findings revealed that respondents were almost unanimous in increasing the level of consumption plan, as 23 out of 27 components covered by the study displayed greater intention to purchase goods and commodities during October.

At the level of governorates, the index ratios increased in five governorates, including the Capital, whereas Mubarak El-Kabier expressed reservations, with its ratio dipping 30 points within a month.

The tendency for more purchases among young people aged 1835 also increased by 13 points for males and 15 points for females.

The ratio of high-income earners also hiked 48 points within a month and 75 points year on year.

The 11.2% annual rise in consumer loans and the rise in personal loans, which accounted for 42.5% of total loans, as well as the 5.2% annual growth rate all served as a catalyst for further consumption.