The latest data on card transactions show retail sales volumes recovering after dipping last year. The recovery, however, is failing to generate an up-tick in consumer prices.
Similarly, consumer confidence has staged a remarkable bounce and now stands at levels not seen since mid-2007 – a time when policy authorities were still trying to rein credit growth back in.
Although a collapse in retail sales was never likely to occur in Kuwait thanks to high incomes and relatively stable employment prospects, such upbeat numbers offer some added reassurance.
In its latest GCC brief, NBK reports that the behaviour of Kuwaiti consumers has taken on ever more importance over the past year, as the boost to economic growth from rising oil and other asset prices in previous years has disintegrated – and gone into reverse. Although there is little direct data available on the consumer sector for us to assess, what limited evidence there is suggests that retail activity in Kuwait has bounced back after dipping last year. Moreover, the recovery is failing to ignite an up-tick in retail prices, suggesting that the central bank need be in no rush to reverse the cuts in interest rates seen since last autumn.
Card transactions signal improving sales
One source of information is the data on ATM transactions, which tracks cash machine withdrawals using both credit and debit cards. (The data here excludes transactions made abroad with cards from Kuwait-based banks.) After dipping in the middle of 2008, annual growth in the value of withdrawals surged in 2Q09, reaching 37% (see chart 1.) – a near-classic ‘V-shaped’ recovery. Part of this rise is attributable to base effects: a weak 2Q08 combined with an unusually large jump in transactions in 3Q08, possibly a result of panic withdrawals during the financial crisis. Annual growth should therefore fall back next quarter. Nevertheless, the recent quarter-on-quarter profile has steadily improved, too (-1.8% in 4Q08; -0.4% in 1Q09; 6.1% in 2Q09), suggesting that some of the bounce is ‘genuine’.
