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Consumer sector stabilizes, remains sluggish
September 30, 2017, 2:25 pm

Fiscal adjustments by the government and oil prices that doggedly remained around the $50 mark, negatively impacted consumer sentiment and caused a slowdown in the consumer sector in 2016. Though this sentiment appears to have stabilized and we are seeing some recovery in card spending, consumer confidence and household credit, nevertheless, most consumer indicators remain noticeably weak in 2017 and far below the double-digit growth of previous years, said the National Bank of Kuwait (NBK) in its latest assessment of the country’s economy.

Consumer spending growth bounced back in 2Q17, but remained below the 2015 pace. Spending growth on credit and debit cards at point-of-sale machines improved to 9.1 percent year-on-year (y/y) during the second quarter, up from 4.3 percent y/y in 2Q16. Growth in total spending, including ATM withdrawals, which has been slower, has also been improving, accelerating to 4.9 percent y/y in 2Q17, said Kuwait’s leading bank in its latest economic report.

Despite the improvement, durable goods have yet to show signs of stabilization. The auto market has been struggling and sales are estimated to have retreated by 20-25 percent in 2016 and a further 12 percent during the first half of 2017. Noticeable weakness in durable goods purchases continued to be reflected in the ARA Consumer Confidence Index, produced by regional marketing research and consultancy firm, ARA Research & Consultancy. The index shows that though durable goods sub-index soared in July, the 3-month average was still down 10 percent y/y.

Nonetheless, there has been steady albeit slow improvement in consumer confidence over the last 12 months. Despite some weakness in the beginning of the year, the ARA General Index has managed to remain above the 100 point benchmark since May 2017. It rose to 106 in July. The index had been on a downward trend for four years and fell more rapidly in 2016 after the government hiked fuel prices. Despite the improvement in 2017, the 12-month average remained down 6 percent y/y.

Meanwhile, inflation in most components remained unchanged in June, leaving inflation in consumer prices largely steady in July, said the NBK report. Year-on-year (y/y) inflation at 1.3 percent remained at multi-year lows, mainly due to deflationary housing rent and weak food inflation. Revised consumer price index (CPI) statistics last month pointed to significantly lower housing inflation in recent months, which in turn dragged the overall inflation rate noticeably lower. Inflation excluding housing rent and food costs has remained higher at 4.2 percent y/y predominantly due to the direct and indirect effects of the fuel price hikes introduced in September of 2016. If transportation costs are also excluded, inflation appears to be somewhat milder at 2.3 percent y/y, said NBK.

On the employment front, the bank noted that despite moderation in government hiring, employment remained healthy and provided support to the consumer sector. Employment growth among Kuwaitis, which has held up quite well in recent quarters, appeared to moderate in 1Q17; the number of new civilian jobs among Kuwaitis dipped below 3,000 for the first time in three years. With private and oil sector jobs steady or improving, the drop in employment came mainly from the public sector, which only added around 8,900 jobs during FY16/17, a drop of 17 percent from the previous year. The sector also saw employment growth slip to 2 percent y/y, its slowest pace in over seven years. Meanwhile, non-Kuwaiti employment growth retreated to below 4 percent y/y during 1H17 after holding up above 5 percent for over two years.

The consumer sector is likely to recover further in 2017 following the recent decision to moderate the hike in utility prices, and calls for postponing or reviewing the proposed fees for expatriate health services, as well as a government commitment to limit its spending cuts.

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