Sentiment boosted by higher consumption

ARA Consumer Confidence Index – December 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.

Higher consumption shores

consumer confidence up

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

The year 2019 has gone, leaving behind a host of accumulated challenges at various levels in several regions and countries.

These challenges mainly include:

Firstly, a number of practices that have been firmly established by globalization in recent years have been renounced. Foremost among these are: global trade openness; cancellation or reduction of customs duties at least in some fields to boost international trade activity; and increased global economic growth. These have been replaced by protectionist decisions and customs duties and taxes imposed by the US on some exports, materials and goods from China, EU countries, and even US allies: Canada and Mexico.

These decisions prompted the target countries to take counter measures, imposing restrictions and fees on a host of US goods.

The world has thus entered a new stage of a trade conflict - which adversely affects trade transactions, and consequently on the global economic growth rate.

Second, and under these circumstances, some countries raised bank interest rates in an attempt to attract investments and control monetary inflation rates. This has created fierce competition in financial markets, affecting production costs and putting several sectors in trouble.

Third, these changes in addition to the rise in the US strategic oil reserves and an unprecedented increase in the US production added to the pressure on oil and gas markets. OPEC tackled these difficulties by extending production cuts to ensure a relative balance between supply and demand to adjust and protect the stability of oil prices.

Fourth: Political and security tensions are still raging in the Middle East and the Gulf region, posing numerous threats and weighing on economic life in the region.

In Kuwait, albeit last year’s achievements there are still a number of challenges that need to be addressed.

Kuwait’s Stock Exchange performed remarkably in 2019: it ranked first at the Gulf level and exhibited significant progress by joining emerging financial markets. Additionally, the Stock Exchange reported considerable gains and upgraded its internal systems and modus operandi.

On the other hand, however, the real estate sector has been struggling to register a boost in growth level, despite its vital contribution to the national economy.

Kuwait’s stability is mainly underpinned by the government’s judicious regional policies on the one hand and the continued cooperation between the legislative and executive authorities on a sound basis of respect for national principles and interests.

According to the findings of the ARA consumer confidence research, the General Index scored 104 points, maintaining its previous record, but losing 6 points compared with December 2018. This ratio is one of the lowest in two years.

The research findings revealed a drop in three indices:

• The Future Economic Situation Index by 8 points

• The Current Economic Situation Index by 4 points

• The Current Personal Income Index by 3 points

The downward curve on these indices affected the General Index, which still maintained its previous ratio by benefitting from a 34-point hike on the Purchase of Durable Goods Index.

The December drop in the three indices reflects a state of anticipation

among consumers.

Both economic situation indices down

The Current Economic Situation Index reported 93 points, down 4 points from the previous month and 8 points compared with December 2018. It has thus marked the lowest ratio since March 2019.

Similarly, the Future Economic Situation Index registered 99 points, losing 8 points within a month and 4 points year on year.

ARA analysts pondered the fall in both indices, taking into account the economic and general developments that took place in December. They noted the following:

A large number of respondents – at the geographic and demographic levels – exhibited lower confidence in both the current and future economic situations. Most previous findings, however, had indicated lower confidence in the current economic situation, but stable or higher confidence in the future economic situation.

The key economic and financial developments that occurred in December include:

• The Kuwaiti Stock Exchange made achievements and gains and performed better, despite some setbacks in the last year.

• Oil prices improved and/or stabilized, on the back of OPEC decisions aimed at enhancing the market balance between supply and demand.

• New agreements were concluded by Saudi Arabia and Kuwait to resume production in joint oil fields.

• The global demand for fuel is expected to increase in 2020.

Nevertheless, other issues still weighed on the financial and economic situation in Kuwait, including:

• The budget deficit neared 4 billion Dinars

• The difficulties being experienced by the real estate sector

• The slow implementation of some reformative projects and programs in the economy’s structure.

In addition to these positive and negative economic developments in December, the political, security and military tensions in the Middle East threaten region’s countries and peoples with serious repercussions.

These tensions not only affect general stability and economy but also weigh on the psyche of consumers as well as the general mood of various segments of the society.

Under these circumstances, the citizens and Arab residents dropped respectively 7 and 14 points.

The findings also exhibited concern regarding the economic situation in various governorates and among low-income people.

Average citizens’ wage in government sector hits 1,822

Dinars

ARA Current Personal Income Index scored 99 points, shedding 3 points within a month and 12 points year on year.

The research findings revealed a significant discrepancy among respondents. The Capital hiked 25 points, whereas Mubarak Al-Kabir plummeted 18 points. The males reported 108 points, up 5 points, while the females dipped 23 points within a month.

This discrepancy reflects the reality of employment conditions and hence the personal incomes in different areas and economic sectors.

A number of key factors that affected personal incomes negatively or positively include:

1. The annual inflation rate, which did not exceed 2% this year

2. The Dinar’s exchange rate against foreign currencies, which shows that it maintained its purchasing power

3. The stability of prices of FMCG and commodities

4. The supply and demand in the labor market, which affects, even though gradually different segments of the population.

These factors may have helped stabilize incomes, with a slight increase in wages ranging from 1.5% to 2% between 2017 and 2019.

Therefore, the dissatisfaction expressed by some respondents might have resulted from the semi-stagnation in incomes or from the lower demand for workforce in some sectors.

On the other hand, the average wage in Kuwait still maintains its position, and official reports revealed that:

• The average income of a citizen in the government sector is 1,822 Dinars per month

• The average wage of Kuwaiti women workers is 1,276 Dinars

• The average wage of expatriates working in the government sector is 736 Dinars

On the other hand, the Expected Personal Income Index reported 107 points, gaining 1 point within a month. The Capital, which exhibited satisfaction at the current personal income by adding 25 points to its ratio, displayed reservations about the expected personal income by losing 1 point from its previous ratio.

Undoubtedly, the local, regional and international developments to come will define the next stage at various levels, including incomes and wages.

Employment opportunities in

Capital down

The ARA Current Employment Opportunities Index posted 137 points, up 7 points within a month, but down 24 points compared with the December 2018 ratio – which was the highest in two years.

Despite the 7-point rise in December, this index was generally characterized by a considerable disparity among the various segments of respondents.

At the level of governorates, the Capital’s ratio decreased from 152 to 118 points, plunging 34 points within a month, whereas Hawalli boosted its ratio with 30 points. This highlighted a significant disparity in the current employment opportunities, depending on the place of residence.

Remarkably, employment opportunities were better viewed by young people aged 18-35, who added 19 points within a month; for females, who increased 12 points; and for workers with lower-intermediate education qualifications who added 17 points.

Consumption index back to

previous ratio

Consumers reported the lowest ratio on the Purchase of Durable Goods Index in November, 84 points, but they pumped up their ratio in December to 118 points – a 34-point rise within a month and 14 points year on year.

This rise contributed to the stability of the General Index in December.

All segments of the research were unanimous in reporting a higher level of consumption, backed with the purchasing power of the Dinar, the limited annual inflation rate, and the growth of consumer credit.

The Purchase of Durable Goods Index, however, traditionally rises by the end of each year.