Sentiment takes a knock amid COVID-19
ARA Consumer Confidence Index – May 2020
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 on 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 overlapping, Covid-19 consequences, oil prices, and economic downturn
The ARA Research & Consultancy has released its Consumer
Confidence Index for May 2020 in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.
As expected, the General Index registered 96 points, showing a fall of 6 points within a month and 12 points within a year. Moreover, the ratios of five out of six indices also dropped, while the Future Economic Situation Index gained 1 point.
It is logical and normal for consumer confidence to retreat, whether in Kuwait or in any other country, due to the repercussions of the Covid-19 pandemic. Such repercussions were experienced at the health, financial and economic levels, and have also had a negative impact on the psyche of all demographic segments.
The problem in managing this pandemic is the inability, at the present time, to set a timeframe or a mechanism to overcome it.
The Arab Gulf states have, so far, sustained losses estimated at $2.33 billion due to the pandemic. Furthermore, in addition to the economic downturn, the plunge in oil prices and the direct expenditure associated with health and preventive measures are estimated at $10 billion.
The pandemic has also affected various economic sectors in Kuwait, including the real estate sector, where the implementation of projects declined or even halted. Furthermore, all other sectors witnessed an economic turndown.
Oil prices recorded an unprecedented plunge in the first quarter of the year, thus affecting the stock exchanges and the budgets of the oil-producing countries. The budget deficit in Kuwait is expected to hit 20% of the national income, which is estimated at 15 billion dinars.
However, oil prices began to recover after some countries started to resume economic activities gradually, and on the basis of OPEC’s readiness to renew the output cut deal. This coincides with the fall in shale oil production and the drop in US strategic oil stocks.
Various countries now encounter the problem of how to strike a balance between the preventive measures against Covid-19 and the gradual easing of restrictions that curtail the economy, as there is now an urgent need to resume economic activity. It is normal that these happenings have weighed on the psyche of consumers and their convictions.
Consensus on deterioration of current economic situation
All components of the research agreed that the current economic situation is deteriorating. They reported 91 points, one of the lowest ratios, marking a significant loss of 14 points within a month, and 8 points within a year.
The gradual rise in oil prices in late May and the fact that the stock exchange recovered part of its losses, which amounted to 6.6 billion Dinars, were insufficient to reduce consumers’ pessimism about the current economic situation.
The citizens posted 105 points on the Current Economic Situation Index, a monthly loss of 21 points, and the Arab residents reported 71 points, losing 4 points within a month.
At the governorates’ level, Mubarak El-Kabier lost 47 points, followed by the Capital with a 17 points decline. Meanwhile, other governorates lost between 15 and 2 points within a month.
Mubarak El-Kabier is the most pessimistic
The global economic situation and its negative indicators are shaping consumers expectations. This year, global trade is expected to shrink by 13-32% of its previous size. This is a direct result of the downturn in global industrial and agricultural production, and the recession in activities of various sectors, including trade, transport, real estate, tourism and other economic fields.
Moreover, the trade conflict between the US and China and the exchange of measures and countermeasures between them have caused global economic activity to shrink further.
In Kuwait and within this global context, Mubarak El-Kabier expressed pessimism about the future economic situation, registering 170 points, a slump of 36 points within a month.
On the nationality level the citizens retained their previous ratio, whereas the Arab residents gained 2 points within a month.
Change in the personal income criteria
In some countries, financial and monetary difficulties overlapped with the repercussions of the Covid-19 pandemic at a global level. This resulted in variables that affected the economic and social conditions of most of the world’s population. It also shifted or altered some of consumer believes, convictions and habits.
With this in mind, the criteria for assessing personal incomes were based on the legitimate aspirations of the workforce to raise their living standards by increase in incomes.
While the Covid-19 era has imposed on the various workforce new variables for their income assessment and this based on firstly their work continuity in the face of unemployment, and secondly the strength and stability of the purchasing power.
Kuwait was able to protect the robustness of the national currency and to maintain its purchasing power while retaining the strength of the Dinar’s exchange rate against other currencies. The state has also been working on its citizen right to employment and the development and implementation of the Kuwaitization. Under these exceptional circumstances, the Current Personal Income Index reported 83 points, down 4 points within a month. Meanwhile, the Expected Personal Income Index posted 105 points, down 6 points within a month.
The margin of difference between the two ratios should be noted as reflecting the low level of consumer confidence in relation to
the current income situation.
Young people - the most vulnerable to unemployment
The ARA Current Employment Opportunities Index was the worst affected among all the indices. The Covid-19 outbreak, the associated preventive measures, the economic downturn, and the stagnation in numerous significant economic sectors have all pressed the labor market and restricted the capabilities of companies to ensure business continuity.
For instance, Kuwait Airways retained 10% of its employees and workers, laid off 1,500 non-Kuwaiti employees, and provided long-term leave for the remaining ones.
Moreover, 37% of employers announced their desire to close their businesses, while others allowed their employees to work from home.
Amid these exceptional circumstances, the Current Employment Opportunities Index registered 99 points, down 13 points within a month, and 25 points within a year.
It is noteworthy that the ratio fell among most of the research segments. For example, for young people aged 18-35, the ratio plummeted 40 points; for the citizens, 24 points; and the females, 30 points.
cial difficulties that the majority of consumers face in their employment continuity.
This experience may help developing work system and mechanism for the workforce and that in accordance with the Kuwaiti national economy and job market needs.
In this context, some international research institutions and economists call for the evaluation and reconsideration of many economic trends that have been exposed by the Covid-19 pandemic.
These focus on the necessity of developing the “real” productive economy of industry, agriculture and infrastructure, and giving greater attention to the health sector, especially in developing countries.
The importance of treatment, prevention, and food security
Among these difficult economic circumstances, the ARA Purchase of Durable Goods Index registered 52 points, a 5-point loss within a month, and a record loss of 78 points on an annual basis, the greatest drop in years. This ratio was expected due to the 14% reduction in consumer spending.
The government still exerts efforts to curb the spread of Covid-19. This includes the treatment of patients, the protection of all social groups from the risks of the pandemic, and the provision of food security for all Kuwait residents, while ensuring quality and price control.
It is hoped that a treatment for the virus will be found, the economic activities will be resumed, and the oil prices will increase, albeit slowly, in June.