nbkKUWAIT: Growth in the consumer sector remained relatively robust, though the sector might be showing some signs of moderating. Household debt growth remained in the double-digits, with the pace even picking up slightly during the last six months. Consumer spending growth has also maintained a robust pace despite a slowdown in household income growth. Meanwhile, further declines in the consumer confidence index during 4Q15 could point to some softening in the coming period.

Household debt growth has maintained a robust pace in recent months, with the pace accelerating over the last six months following nearly two years of moderating growth. Growth came in at 12.9% year-on-year (y/y) in November 2015. Personal facilities excluding credit for the purchase of securities rose to KD 10.8 billion. Installment loans, which largely finance home acquisition, remained the only source of growth, having risen by 15.9 percent y/y in November 2015.

Growth in consumer card spending saw a notable pick up in 3Q15 after a period of easing growth. The value of point-of-sale (POS) transactions grew by 17.8 percent y/y in 3Q15. Growth in spending including consumers’ ATM cash withdrawals also picked up to 11.1 percent y/y. These figures indicate that consumer spending behavior has not been dented so far by the decline in oil prices seen since the middle of 2014.

Despite the robust borrowing and spending figures, consumer confidence appeared to soften during the second half of 2015. The overall ARA confidence index dropped to 95 in December 2015, its lowest reading in nearly six years and the second consecutive month it comes in below 100. The durables goods and employment components were particularly weak, recording relatively large declines over the last few months.

Employment growth among Kuwaiti nationals slowed in 2015. More than 16,100 new civilian jobs were added over the 12 months ending in September 2015, slightly higher than the 15,700 added during the comparable period the year before. Still, net employment growth slipped to 1.3 percent y/y compared to 5.3 percent y/y growth registered a year before.

Most of the weakness in employment growth was in the private sector and could be the result of the government’s efforts to clamp down on “phantom” employment. Private employment declined by 10 percent y/y, with the loss of around 6,500 jobs over a 12-month period. The decline in private sector employment, which is in its third quarter, is likely related to recent efforts by authorities to go after so-called “phantom” employees, who seek to obtain the generous government allowances received by private sector workers without being genuinely employed.

The one-time drop in employment has caused growth in household income among Kuwaitis to slow in 2015 as well. We estimate that the aggregate household income of Kuwaitis working in non-military jobs grew by 3.8 percent y/y through 3Q15, based on data from the Public Institute for Social Security (PIFSS). Growth had peaked at 6.6 percent a year before. The slowdown in household income growth is due to reduced employment during the period and not to slower growth in pay. In fact, growth in average pay has been accelerating over the last two years and continued to do so through 3Q15, rising to 2.4 percent y/y; still, growth remains well below the pace seen in 2011.

Consumer sector growth is likely to remain healthy, though there are some signs that the pace could moderate. Employment growth among Kuwaitis, combined with strong housing demand, is likely to continue to support household debt growth in the coming period. Meanwhile, the drop in private sector employment is likely to be temporary, with employment expected to be well-supported in the coming period by steady government hiring and accelerating growth in the private sector.