COVID-19 pushes consumption to its lowest level
ARA Consumer Confidence Index – March 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 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.
COVID-19 impacts the world consumption down to its lowest level
ARA Research & Consultancy has released its Consumer Confidence Index for March 2020 in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.
The coronavirus (COVID-19) has spread across the world, causing hundreds of thousands of infections and tens of thousands of deaths. It has thus imposed financial, economic and social repercussions on all countries, albeit to varying degrees.
These repercussions have affected all economic sectors, including industry, agriculture, transportation, trade and services, as well as tourism and others.
Amidst these unprecedented circumstances, expectations have varied regarding the negative results of this pandemic, both financially and economically. Some international organizations, including the World Trade Organization, are concerned that the global production will drop at varying ratios between 2.5% and 7%.
However, all these expectations are tied to the ability to overcome the pandemic, the period of time necessary to achieve that, and the cost to be paid.
These human and financial losses and the retreat of the global economic activity have weighed on stock exchanges, which have been registering losses, thus threatening a large number of sectors and companies.
The oil sector had the lion’s share of these losses, as oil demand plunged, while the supply increased to about 100 million barrels per day (bpd). This means that demand is approximately 10-15 million bpd lower, something which pushed oil prices to dip to their lowest levels in years.
Amid these disturbing circumstances and multiple challenges, ARA conducted its study of consumer confidence in Kuwait for March 2020.
The General Index registered 104 points, up 4 points within a month, and 1 point down compared with March 2019. The ratios of three indices increased 10 to 19 points.
Meanwhile, three other indices dropped, chiefly the Purchase of Durable Goods Index which reported 50 points, down 42 points within a month, the lowest since 2007 - the year in which ARA consumer confidence study was launched.
Given this unexpected rise in
three indices, one should analyze the research findings to identify the factors, causes, inclinations and convictions of the various components and demographic segments of the research.
Coronavirus affects consumers’ daily life
Notably, the March 2020 research findings revealed financial and economic pressures that have affected all sectors, as well as an 8-point rise on the Current Economic Situation Index which scored 108 points. The Future Economic Situation Index also hiked 19 points to hit 116 points, despite the current situation. The most important challenges include:
■ The projected budget deficit may exceed $12 billion for the current financial year
■ The heavy losses sustained by the Kuwait Stock Exchange
■ The sharp plunge in oil prices, awaiting the next OPEC meeting to reduce supply and strike a balance with the level of demand
■ The total stalemate in the most important economic sectors, which threatens a significant decline in the national income growth rate in the current year
■ The slump in the volume of real estate transactions, which plummeted 20% in January
These are some of the financial and economic developments that Kuwait and other countries around the world are currently suffering from.
These findings raise a question about the increase in consumer confidence in Kuwait in relation to the economic index.
The research findings revealed a large variation in the convictions and priorities of the demographic segments that make up the research.
The daily challenges, the required measures and ensuing concerns related to the coronavirus appear to have changed the consumers’ priorities and public concerns.
Health security priorities came first in public thinking and behavior, followed by food security and financial stability. Public anxiety in the time of coronavirus has been revolving around these three axes.
Accordingly, differences emerged among respondents, the most prominent of which is the disparity in the level of confidence between citizens and residents.
The government’s willingness to ensure health and food security for all has created a general and overall satisfaction. This culminated in the reassuring speech by His Highness the Emir of Kuwait, who affirmed the government’s care for all.
In this context, the government has taken several measures, including postponing the payment of consumer and personal loans and credits for three months and ensuring the payment of salaries and wages, in addition to other decisions and guarantees.
Additionally, the Kuwaiti financial situation remained solid although the country’s rating by international institutions retreated due to the low oil prices and the negative impact of the Covid-19 on economic activities and the expected economic growth.
The government’s measures ensure financial support has created a positive atmosphere and a degree of reassurance, especially among the citizens who scored high ratios on the six indices of the research.
Meanwhile, all other ratios slumped among the Arab residents due to their concern about the stagnation of activity in most sectors, which may threaten the continuity and stability of their businesses and incomes.
Among the expatriate workers affected by the economic stalemate are the unskilled workers and employees in private sector companies, specifically in the fields of tourism, aviation, transportation, construction, services, restaurants, and others.
ARA Current Personal Income Index registered 92 points, losing 1 point within a month and 5 points year on year.
Meanwhile, the Expected Personal Income Index registered 112 points, gaining 10 points within a month and 3 points within a year.
There was an apparent discrepancy between the level of citizens’ confidence in the current and expected personal incomes and the low level of confidence among the Arab residents, who reflected in one way or another the level of confidence of the expatriate residents in general.
One example of this discrepancy is the fact that the citizens posted 129 points on the Current Personal Income Index, up 24 points, while the Arab residents reported 46 points, losing 28 points from their previous monthly ratio. The Current Personal Income Index is thus the lowest among all research components.
This sharp disparity in the levels of confidence between the components of the research is based on a set of developments and facts, which mainly include:
■ The uncertainty of the coronavirus course and how and when it can be overcome.
■ Concerns about the repercussions of the contraction and/or stagnation of activity in most economic sectors, including transportation, tourism, services, industry, agriculture and construction.
In this perspective, most governments took the necessary measures to ensure social assurance, postponed the payment of financial obligations of the low-income categories, and provided some in-kind and financial aid to the low-wage workers.
These initiatives went beyond national frameworks, as the G20 Summit in Riyadh took important decisions in global solidarity to confront the coronavirus and support those countries that do not have the ability to withstand.
Continental, international and national decisions were also taken in this regard.
In the meantime, the financial and monetary situation in Kuwait allowed the government to guarantee the security and stability of its citizens.
However, expatriates in Kuwait are concerned, especially the nonqualified workforce and those working in the sectors that have experienced stagnation or contraction, as these sectors may have to abandon their workers in the medium term.
In this regard, the International Labor Organization has voiced its concerns about unemployment, including in Arab countries, as an inevitable consequence of the coronavirus pandemic.
ARA Current Employment Opportunities Index registered 119 points, down 3 points. The Capital and the Arab residents dropped 26 and 17 points, respectively, within a month.
This plunge reflects the fear that Kuwait may experience a wave of unemployment.
The public sector is facing financial pressures due to the drop in oil prices and the budget deficit of approximately $12 billion.
This reality makes it difficult for the government sector to absorb the national workforce. In the meantime, the private sector faces numerous difficulties. An example of the challenging employment situation is the 20,000 employees in the aviation sector who may lose their jobs.
Also, approximately 24,000 citizens are vulnerable to unemployment, which prompted the government to intervene to protect them. Likewise, unemployment may affect workers in small and medium enterprises.
This is a fateful challenge for many countries that are now discussing how to strike a balance between the priority of fighting the epidemic, which requires home quarantine, and revitalizing some of the important economic sectors in the public and private sectors in order to protect companies and ensure economic priorities.
Several countries are seeking to resume business, including the United States, Germany, Japan and the Scandinavian countries, for fear of losing economic and social security.
Nevertheless, workers will be exposed to a high rate of unemployment.
A number of factors affected the purchase of durable goods in March, the first of which was the spread of the coronavirus and the subsequent closure of markets, as well as the deterioration of the psyche of consumers and their refrainment from shopping under the current circumstances.
ARA Purchase of Durable Goods Index reported 50 points, a loss of 42 points within a month, thus recording the lowest ratio since 2007, the year when ARA launched the consumer confidence research in Kuwait.
The ratios of the research components dropped markedly on this index, with a loss ranging between 20 and 101 points within a month.
The consumers doubled their purchase of foodstuffs, cleaning tools and other stuff for fear of shortage.