- We have a positive outlook for consumer spending in 2022 and 2023, with real household spending forecast to grow 6.8% y-o-y and 2.6% y-o-y respectively. This growth in spending will mainly be supported by the lifting of Covid-19 related restrictions and elevated oil prices, keeping unemployment low and stable.
- The most recent high frequency data indicate that consumer spending has been increasing in recent months. This trend will continue over the remainder of 2022 and into 2023 as economic activity increases and tourist arrivals gradually recover.
- We highlight several risks to outlook over 2022 and into 2023, including lofty food prices and supply chain problems as a result of the Ukraine-Russia conflict, particularly as Kuwait is heavily dependent on food imports. However, the recent hike in the policy rate for Central Bank of Kuwait alongside the delay in VAT tax introduction to 2024 will help to keep inflation in check into 2023.
Outlook For 2022 And 2023
Consumer spending in Kuwait will post solid growth over 2022 and 2023. We forecast real household spending to grow by 6.8% in 2022 and 2.6% in 2023. The easing of Covid-19 related restrictions is pushing up household spending in 2022 relative to 6.0% in 2021, creating a low base for spending to grow which is why we note the deceleration in 2023. The positive growth in Kuwait's real household spending in 2022 will be due to Kuwait's improving epidemiological situation following a successful Covid-19 vaccination rollout. We believe that this will reduce the risk of further stringent lockdowns for the rest of 2022 and into 2023. Our 2023 forecast for total household spending is KWD19.8bn (USD61.9bn), which is an increase from KWD18.9bn (USD59.1bn) in 2022. The deceleration will return household spending growth to a medium-term trajectory that we saw pre-pandemic.
We note that the outlook for spending growth in 2022 and 2023 is underpinned by our expectation that the introduction of a value-added tax (VAT) will be postponed until 2023/24 amid concerns over inflation and the dissolution of parliament. Indeed, in other countries across the Gulf Cooperation Council that have implemented VAT, we have tended to see inflationary pressures, eroding consumer real purchasing power in the first year. However, Kuwait’s latest budget contains no reference to VAT and our Country Risk team expects the government’s improved fiscal flexibility will limit the need for a new tax over 2022.
Spending Growth Will Be Positive, Despite Decelerating
Kuwait - Total Household Spending, Real % y-o-y (2019-2026)
High-Frequency Data: Point Of Sale Data Indicate Strong Spending Growth
The most recent high-frequency point-of-sale (POS) data for Kuwait indicates that solid growth in spending is underway. In the three months ending March 2022 (latest available data), point of sales transactions were valued at KWD3.9bn (USD12.6bn), increasing from KWD2.8bn (USD9.1bn) in Q121 and well above the Covid-19 levels in Q120 when POS transactions amounted to KWD2.0bn (USD6.5bn). The lifting of Covid-related restrictions and the delaying of the introduction of 5.0% VAT to 2024 will further support consumer spending growth for the remainder 2022 and into 2023. Furthermore, we expect the gradual recovery in the tourism sector should to drive retail sales.
Healthy Growth In Q122
Kuwait - Monthly Point-Of-Sales Data, KWDmn (2019-2022)
Insights Into Consumer Spending
Our positive outlook for consumer spending in 2022 is in line with our Country Risk team's forecast that Kuwait's real GDP will grow by 7.1% over the year. Rising oil prices following Russia's invasion of Ukraine will support wage and employment prospects of Kuwaiti consumers in 2022 as production increases as OPEC+ restrictions are eased. In Kuwait, oil is a key source of government revenue, and therefore determines to what extent the government is able to afford high employment and wage levels in the public sector, while it also dictates the country's federal budget and fiscal policy. Our Oil & Gas forecasts Brent crude prices to average USD100.0/bbl in 2022, increasing from USD71.95/bbl in 2021. We forecast Kuwait's unemployment rate (as a percentage of the total labour force) to remain low in 2022, averaging 2.1%.
|Real GDP (% chg y-o-y)||7.1||4.6|
|Unemployment (% of total labour force)||2.1||2.1|
|Consumer price inflation (% y-o-y, ave)||3.9||2.2|
|Total tourist arrivals, '000 % y-o-y||63.8||38.6|
Inflationary pressures continue to build. Over the latter half of 2022, inflation is beginning to shift into services such as tourism. Rising consumer price inflation has been the key risk to consumer spending over 2022, and it has been eroding purchasing power and shifting consumer spending away from discretionary spending. This is the economic reality that consumers enter into in 2023. Inflationary pressure started to rise globally in 2021, as localised shortages were created by base effects, higher commodity prices and supply chain challenges. The Ukraine-Russia conflict has also significantly impacted the global supply prices of key commodities, such as oil and gas, fertiliser, wheat, corn and barley. The commodity price increases are already feeding through into higher consumer prices and this will continue over 2022.
The most recent data from Kuwait Central Statistical Bureau indicate that consumer price inflation was recorded at 4.4% y-o-y in June 2022, higher than the 3.4% y-o-y in June 2021. Food price inflation has consistently been higher than headline inflation, recorded at 8.2% y-o-y in May 2022. We note that Kuwait imports around 95% of its food from abroad. Rising food prices are a downside risk to our outlook for consumer spending as it is weighing on consumer purchasing power. Our Country Risk team forecasts Kuwait's consumer price inflation to average 3.9% y-o-y in 2022, slightly higher than the 3.4% y-o-y in 2021.
Food Price Inflation Maintains Momentum
Kuwait - Consumer Price Index, % y-o-y (2020-2022)
Household Debt Outlook
Kuwait's household debt as percentage of GDP is low in the country with latest estimates putting it at 12.3% in April 2022. Consumer loan growth over the 2015-2020 period was relatively flat, at under KWD800mn annually but surged to KWD1.1bn (USD3.6bn) in 2021, amid a low interest-rate environment. The Central Bank of Kuwait has since raised its discount rate by 25bps to 2.25% on June 15 2022, after the US Federal Reserve hiked its fed funds rate by 75bps on the same day to stem stubbornly high inflation. Higher interest rates will weigh on the disposable incomes of Kuwaiti households as their debt servicing costs increase. Although, we believe the Commercial Bank of Kuwait will try to keep lending costs low (relative to the US) to support the recovery in the country’s non-oil economy. The country links its dinar to a basket of currencies that includes the US dollar.
Risks to our outlook are skewed to the upside, as a faster-than-expected recovery in the non-oil economy or higher-for-longer inflation could force authorities to raise discount rates further, and chip away at the disposable incomes of Kuwaiti households.
Consumer Loan Growth Generally Modest, Above-Trend Surge In 2021
Kuwait Consumer Loans Issued By Local Banks: 2015-2021 (KWDmn)
Wider Economic Challenges
Supply chain issues continue, having first appeared when economies globally started to reopen in 2021, with consumers demanding products that they had little access to over 2020. This continues to place pressure on manufacturers, with bottlenecks and consumer good shortages emerging, which has fed through into supply side inflation. For example, the global semiconductor shortage will continue through 2022 and into 2023, putting pressure on the supply of multiple consumer goods. In 2022, the risks surrounding Covid-19 have moderated, as population immunity (from vaccines and prior infection) combined with less severe variants of SARS-CoV-2 have meant that death rates have remained low through recent infection waves. This has seen many markets globally adopt a more 'live with Covid-19' approach to movement and operating restrictions, although some nations are retaining a ‘Zero-Covid’ policy.
More transmissible variants of SARS-CoV-2 and Mainland China’s zero-Covid are causing the disruption/closure of factory production and manufacturing across the world. Manufacturers are facing shortages of key components and higher raw materials costs. Inventory levels are increasing, as consumer demand shifts away from products and into services, such as tourism. This will elevate some price pressures, as companies offload stock at a discount. Finally, the Russia-Ukraine conflict continues to place significant supply pressures on key commodities, especially food supplies, pushing up final market prices across a spectrum of consumer categories. Some countries, such as India, Malaysia and Argentina have reacted by placing their own restrictions on the export of food items, putting further pressure on global prices. The graphic below highlights some of these risks to the outlook impacting Kuwait's consumer market in 2022 and into 2023.
In order to track our analysis of consumer spending in Kuwait during the Covid-19 pandemic and our recovery projections please see:
Covid-19 2021 Impact Assessment
- Kuwait Consumer Outlook: Spending Recovery From Covid-19 To Spill Into 2022 And Onwards
- Consumer Outlook 2021: Kuwait's Vaccine Rollout Will Support Consumer Confidence And Spending
- Kuwait Consumer Recovery Getting Under Way In 2021
- 2021 Recovery Assessment: Kuwaiti Consumer Emerging From Covid-19
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