Fitch Solutions agency saying the consumer spending in Kuwait is expected to grow during 2022 and 2023, and it is more than likely that the household spending in Kuwait will grow by 6.8% in 2022 and 2.6% next year. It is also expected that the country’s GDP will grow by 7.1% this year, and 4.6% in 2023.
A local Arabic daily quoting the agency said in a recent report the growth of household spending in Kuwait in 2022 was due to the improvement of the epidemiological situation after the government launched a successful vaccination campaign against the Covid-19 pandemic, which reduced the risk factor of shutdowns for the rest of this year and until 2023.
Fitch added, the total spending of families in Kuwait in 2023 is expected to reach about 19.8 billion dinars, up from 18.9 billion dinars in 2022, saying about two months ago the total spending of families in the country in the current year will reach about 11.8 billion dinars compared to 10.7 billion in 2021.
The agency noted that the expectations of the growth of household spending in Kuwait in the current year and next year are supported by the odds to postpone the introduction of the value-added tax until 2023 or 2024, amid concerns about inflation, geopolitical events and local political conditions.
The sources said the agency’s risk team expects the financial flexibility of the Kuwaiti government will lead to reduce the need for a new tax in the current year.
Fitch Solutions added the positive outlook for consumer spending in Kuwait in the current year is in line with expectations for Kuwait’s GDP growth of 7.1% in 2022.
The rise in oil prices after Russia’s invasion of Ukraine will support wages and employment in Kuwait while increasing crude production and easing OPEC + restrictions.
The sources stated that Kuwait’s oil analysis team expects the average price of Brent will average about $100 per barrel in 2022, compared to $72 per barrel in 2021, but warned against the continued increase in inflationary pressures.
The agency said the inflation started from the beginning of the second half of this year to shift to service sectors in Kuwait.
The rise in inflation poses a major threat to consumer spending in the country during the remainder of this year, which may lead to an erosion of purchasing power and change estimates of consumer spending in the coming periods.
The agency added inflationary pressures began to rise globally in 2021, as challenges of commodity shortages began to appear, as well as high oil prices and challenges of supply chain disruptions.
The Russian-Ukrainian conflict has also greatly affected the prices of supplies of basic commodities such as oil, gas, wheat, corn, barley and fertilizers. All these factors will affect prices and consumer spending in Kuwait during the current year.
Fitch Solutions reported that the rise in food prices poses a negative risk to its expectations regarding consumer spending in Kuwait, because it strains the purchasing power of consumers. It expects the average inflation in Kuwait to reach 3.9% in 2022, which is an average slightly higher than 3.4% last year.
The sources pointed to the decline in household debt in Kuwait as a percentage of the gross domestic product, according to data of the Ministry of Finance in April, amounting to about 12.3%, explaining that the growth of consumer loans during 2015 and 2020 was relatively stable at less than 800 million dinars annually, but it rose to 1.1 billion dinars in 2021 amid a global low interest rate environment.
Note that the high interest rates will affect the disposable income of families in Kuwait with the increase in loan costs.
Fitch Solutions concluded by saying, “Our risk expectations tend to rise, as a faster recovery than expectations for the non-oil economy or higher inflation for a longer period may force the Central Bank of Kuwait to raise interest rates further in the future, which may put pressure on household incomes.”