Consumer spending in Kuwait had been at its highest by the time 2021 ended.
The Central Bank of Kuwait released a study on consumer spending in Kuwait, which showed some welcome changes compared to how it had been ever since the COVID-19 pandemic happened.
Consumer spending in Kuwait increased by 8.7 billion dinars, or 34%. As a result, it totaled 34.3 billion dinars at the end of 2021. This is much higher than the consumer spending in Kuwait that was seen in 2019 and 2020.
At the end of 2020, consumer spending in Kuwait was 25.6 billion dinars, while in 2019 it was 23.3 billion dinars.
What Drove Consumer Spending in Kuwait to Increase in 2021?
The COVID-19 situation in the country improved last year, with a decrease in the number of COVID-19 cases and an increase in the number of citizens who have been fully vaccinated against the coronavirus.
Because of this, many of the strict restrictions imposed were eventually lifted by the government. This meant an increase in economic activity. Businesses reopened and citizens and residents started leaving their homes to go to establishments.
Other factors that came into play were the postponement of the premiums for citizens for one whole year and the postponement of the premiums on loans taken by residents for six months. This resulted in more market liquidity and encouraged citizens and residents to increase their spending.
The months from October to November of last year greatly contributed to the increase in consumer spending in Kuwait. During those months, the situation in Kuwait was becoming more normal. Kuwait Airport started operating at full capacity and many of the travel bans were lifted. Expats could come to the country and, at the same time, those residing in Kuwait could leave to travel elsewhere. This led to more mobility and activities for citizens, residents, and even foreign travelers. Because of this, consumer spending in Kuwait increased by 9.5 billion dinars just within those three months.
32.7 billion dinars of the consumer spending in Kuwait last year came from points of sale, cash withdrawals, and websites done inside Kuwait. Those done through similar channels but outside Kuwait reached 1.5 billion dinars.
More loans were also taken by citizens for various reasons. Consumer loans for durable goods, such as cars, appliances, and electronics, with a value of 238 million dinars increased by 15%. As such, the sum of the loans was as big as 1.84 billion dinars. This is more than the 1.6 billion dinars reported in 2020.
Citizens started to prioritize the renovation of their homes and the acquisition of private housing. Installment loans granted by institutions for such purposes increased by 9%, at a value of 1.68 billion dinars. In total, these reached 14.39 billion dinars. The value only reached 12.7 billion dinars in the same month the year before.
All of the aforementioned loans granted by banks in Kuwait amount to a total of 42.28 billion dinars. In 2020, it was 39.76 billion dinars. This results in an increase of 6.3%, or 2.52 billion dinars, within one year.
Similarly, loans taken for the purpose of buying securities increased by 9%. Its value was 233 million dinars, resulting in a total of 2.812 billion dinars by the time the year ended. It was only 2.58 billion dinars in December 2020.
What is Consumer Spending?
Consumer spending is defined as the “total money spent on final goods and services by individuals and households for personal use and enjoyment in an economy.” These include buying durable goods, nondurable goods, and services.
There are many different factors that determine consumer spending. Let’s take a look at each one of them.
Disposable income is the most important factor affecting consumer spending. This refers to the amount of money that remains after taxes are deducted from income. More disposable income leads to more consumer spending, which means that demand increases. In order to meet this demand, manufacturers need to increase their production as well. This will require companies to hire more employees. As wages increase, consumer spending follows. This cycle continues, leading to economic expansion.
In 2019, the disposable income in Kuwait was 42,106.966 KWD.
Income per capita is the average income that each person earns in a given area. It is calculated by dividing the total income of an area by the population of that area. This gives information on the standard of living and quality of life that citizens have. At the same time, it is a common metric to determine the wealth of an area and its affordability in terms of the cost of living. Businesses can also look at this metric to evaluate the possibility of earning in a given location. A higher income per capita means that people have more money to spend and purchase their products.
The gross domestic product (GDP) per capita in Kuwait was 24,911.8 USD in 2020.
Income inequality refers to how uneven the distribution of income is throughout a given population. When economic growth benefits individuals in the high-income group, it can possibly lead to economic instability. These individuals are more likely to save the money that they have or spend it in foreign countries. On the other hand, when economic growth benefits those in the low-incoming group, it becomes more beneficial for the country since they spend more of their money on necessities that can be bought within the country.
Household debt includes all the liabilities that a given household has where interest or principal needs to be paid to creditors at fixed dates in the future. Liabilities include mortgage loans, consumer credit, auto loans, and other accounts payable. In relation to this, the debt service ratio compares the household debt to the total disposable income. It provides information on the ability of households to pay off their debt with the disposable income that they have. Households that have more debt tend to cut back on their spending because they have loans to repay and their future financial situation may be at stake.
Interest rates also influence a consumer’s decision to take on loans to purchase certain goods. Higher interest rates mean that it will be more expensive to borrow money. Because of this, they may be discouraged from applying for loans, especially for items that are non-essential. This affects consumer spending because not all consumers can purchase goods on a one-time payment. Expensive purchases, such as vehicles and homes, may cost more than what they earn. It will require them to take on loans so that they can have a payment scheme that is more suitable for their situation.
Having higher interest rates can also decrease the disposable income of a household when they do take on these loans.
Consumer confidence indicates the level of optimism that households have about the current and future economic situations in the country, as well as their personal financial situations, employment, and savings capability. Consumers who are more confident tend to save less and consume more. On the other hand, consumers who are pessimistic save more and consume less.
How Does Consumer Spending Help the Economy?
Many stakeholders, such as businesses, investors, the government, and banks, pay attention to consumer spending in Kuwait.
Businesses should be aware of the determinants of consumer spending since it directly affects their ability to sustain and expand their operations. When consumers earn more income and spend more of it as well, businesses thrive because they gain more profit. When the consumer spending of citizens is low, the sales of businesses follow suit. This may require them to reduce the amount of production and lay off workers.
At the same time, consumer expenditure patterns are taken into consideration when making fiscal and monetary policies.
Consumer spending also contributes significantly to a country’s GDP. In 2019, household consumption contributed 41.36% to the GDP of Kuwait. An increase in consumer spending translates into an increase in the nation’s GDP. However, this comes with the condition that consumers purchase from the domestic market.
But caution should be taken when the demand of consumers goes beyond what suppliers of goods and services are capable of producing. This will force businesses to hike their prices, which can eventually lead to inflation.
The easing of COVID-19 restrictions and the gradual return to a normal life have benefited citizens, businesses, and the overall economy. More mobility increases the demand, which, in turn, pushes businesses to get up and running to meet this demand.