Rise in consumer lending sustains spending outlook

KUWAIT: Consumer spending growth saw a better-than-anticipated pick-up so far in Q3, consistent with strong loan growth, a steady macroeconomic climate, healthy employment growth and as oil prices hovered around $60/bbl. We expect these factors to persist this year and offset the softness in wage growth, ultimately keeping consumer spending at encouraging levels.


The NBK consumer spending index (CSI) has thus far (as of August) expanded by 3.3 percent y/y in 3Q19 - above the 1.9 percent and 1.4 percent averages recorded in Q2 and Q1, respectively. The improvement in spending is consistent with the notable increase in consumer lending seen in the first half of this year. The improvement in consumer spending is confirmed by some of the key consumer-related indicators. The CBK's data on point-of-sale (POS) transactions and ATM withdrawals shows an increase of around 4 percent y/y in 2Q19, a sign that the slowdown that started in early 2018 may be bottoming out.
The outlook on spending has improved not least because of the sharp increases in consumer lending of late. Consumer loan growth accelerated to an over five-year high of 24.5 percent y/y in July from 18.4 percent y/y in June.

After years of softness, consumer lending has picked up sharply now for six straight months, mainly driven by the loosening of consumer loan limits (to KD25,000 from KD15,000 previously) by the Central Bank of Kuwait. We expect the healthy increase in consumer borrowing to continue to support spending levels in the coming months.


Despite the leap in consumer credit, growth in overall household debt - which includes loans for house purchase - has continued to gradually ease, standing at 5.4 percent y/y in June versus 5.8 percent at the start of the year. Consumer loans account for less than 10 percent of all total household loans, so the latest strength does not imply a large impact on the total household debt burden, or a reduction in spending potential.
Labor market sending mixed signals


The ongoing improvement in the jobs market is also a positive for the consumer spending outlook. Employment growth among Kuwaitis held steady at a decent 4.2 percent y/y in 1Q19, unchanged from the previous quarter. Overall employment growth for Kuwaitis remains supported by relatively strong hiring by both the public sector (+4.3 percent y/y) and private sector (+3.6 percent), reflecting ongoing Kuwaitization efforts. Latest data as of end-year 2018 showed expat hiring also holding firm, rising by a two-year high of 4.3 percent.
Public Institution for Social Security

By contrast however, wage growth remains weak and is likely to continue to weigh on spending, although overall average wages recovered slightly in Q1 at 1.4 percent y/y from 1.0 percent y/y in 4Q18. The pick-up was led by an improvement in average wages among Kuwaitis from 0.7 percent y/y in 4Q18 to 1.2 percent y/y in 1Q19. In contrast, average wage growth among non-Kuwaitis was unchanged at 2.4 percent y/y during the same period.

While employment growth for Kuwaitis as well as expatriates are broadly favorable, overall population trends are less so due to the drop in the number of non-working expats, i.e. dependents. Latest data (December 2018) showed a 1.3 percent decline in the number of dependents amid increases in certain charges such as health insurance and school fees, previous subsidy cuts, and also some political pressure to limit expat numbers. The decline in dependents may add some downward pressure on consumption given their high propensity to consume.

NBK ECONOMIC REPORT