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Kuwait ‘11 Consumer Spending Picks up; Confidence ’strong’

Middle East : 15 April 2012

Source: Arab Times

The consumer sector saw a strong pick up in 2011 driven by a large Amiri cash grant early in the year and a series of pay hikes for nationals. The first three quarters saw a large rise in consumer spending and consumer confidence strengthened as a result. Household debt also ended a year of slow growth in 2010 to begin a solid recovery in 2Q11, which has been sustained since. Employment growth among Kuwaitis remained solid. Expatriate hiring in the private sector returned to positive growth for the first time since the financial crisis.

Spending growth maintains boost from Amiri grant

An Amiri cash grant provided to Kuwaiti nationals in 1Q11 appears to have had a strong and sustained impact on consumer spending in 2011. Point-of-sale (POS) transactions on both credit and debit cards in 3Q11 were 29% higher than a year before.

The Amiri grant of KD 1,000 to every Kuwaiti national paid in February 2011 provided around KD 1.1 billion in additional spending power to households, or more than 3% of 2010 GDP. Also, in an effort to counter rising food prices, the government hiked food subsidies, further boosting spending power.

Public sector pay hikes

Pay raises for Kuwaitis and some expatriates working in the public sector also helped drive up spending in 2011. The government approved a number of pay hikes for public sector employees including teachers, oil sector employees, and engineers. Military personnel also received pay increases in 2011. Increases are mostly a response to a higher cost of living in the last two years which had put pressure on real wages.

Approved public sector pay hikes in 2011 should lift aggregate household income by an estimated KD 700 million annually and thus provide a strong boost to household spending power. Similar pay hikes have been approved this year by the government for Kuwaitis employed in the public and private sector.

As a result of the pay hikes, growth in total wages of Kuwaiti civilian employees is estimated to have accelerated in 2011 to its most rapid since 2009. Year-on-year growth in aggregate income is estimated at 7.1% at the end of 2011 compared to 5.6% in 2010. This rise in aggregate wage income captures growth in both salaries and employment.

Consumer confidence improves further

Consumer confidence has improved as a result, with published indices showing strong gains during the first half of 2011. The Ara’a consumer confidence index rose to 133 early in 2011 after reaching a low of 99 in November 2010.

Household demand for credit resumed in 2011

Household debt also picked up during the first half of 2011 and remained strong through 4Q11. This came on the heels of weak growth in 2010 and 1Q11. Growth in total outstanding consumer and installment loans at banks accelerated to 8.4% by the end of 2011.

Kuwaiti employment growth remained solid

Civilian employment among Kuwaiti nationals eased in the most recent 12 months but remained solid. The net increase in civilian employment stood at 11,200 during 2011. Employment grew 4.2% y/y in 2011, compared to 5% a year earlier. The Kuwaiti nationals’ civilian workforce totaled 279,000 at the end of 2011, three-fourths of which worked in the government sector.

The strongest employment growth among Kuwaiti civilians was in the government sector, which accounted for 81% of net new jobs. Growth in the number of Kuwaitis working in the government sector in 2011 stood at 4.8%.

Meanwhile, the private sector’s absorption of Kuwaiti labor force entrants has slowed following a three-year surge that started in 2007 and which saw employment of nationals more than double. During 2011, the number of Kuwaitis working in the private sector rose by 800, compared to 3,100 the year before. Before that, the sector was seeing net new jobs for Kuwaitis at a rate of over 8,000 per annum.

After declines, expatriate hiring recovers

Expatriate employment in the private sector made a healthy recovery in 2011 ending two years of decline. Private sector employment of non-Kuwaitis (excluding household workers) rose by an annualized 4% in 2011, indicating recovering private sector hiring. Growth in the total expatriate workforce was slower at 2.6%, pulled down by negative growth in the number of household workers.

Expatriate employment in the public sector also saw an improvement. Non-Kuwaitis working in the government sector grew by an annualized 4.6% during 2011; growth a year ago stood at 3.6%. Meanwhile, employment among domestic workers continued to shrink with year-on-year growth of negative 0.5% at mid-year.

Consumer sector expected to maintain recovery

The recovery in consumer spending is expected to remain in place in 2012 though growth is expected to ease from the current pace. Spending should continue to receive support from relatively healthy confidence levels and a private sector recovery. The new pay hikes for Kuwaiti employees are also likely to provide an additional boost to consumers’ spending power.

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