Insulation from the current world credit and financial crisis has kept consumer confidence in the UAE strong for the first half of 2008, but sentiment has fallen lower than the past year’s index, a new study shows.
Spending levels in the UAE continue to run at strong levels and there is no sign of an easing of consumer demand, according to Denzil Lawson, General Manager, the Middle East and Levant, MasterCard Worldwide, which conducted the survey. The survey measured consumer confidence or sentiment on prevailing expectations in the market for the first six months of this year.
“We’re pretty insulated [from the sub-prime crisis and credit crunch], and we’ve got very little, if any, exposure to the sub-prime market,” Lawson told Emirates Business. With high oil prices, an investment boom fuelled by the region’s tremendous reserves, and less reliance on exports from the US, there will not be any impact on the UAE if the US slows down, he said.
Chief economist at the Dubai International Financial Centre Dr Nasser Saidi said the region will be insulated and is going through increased “de-linking” as it grows economically.
“Economic reforms and diversification mean the many sector changes are de-linking us gradually from the US and Europe and linking us more closely with Asia and China,” Saidi said. “I don’t think we’re going to [experience] the sub-prime blues. The economies of the region have become asset-based as opposed to oil-based, which means there’s a financial resources cushion which allows us to move forward,” he added.
Asia – including the Middle East and Japan – now accounts for nearly 40 per cent of the world’s output, meaning the majority of the world’s output is now produced in the Asia region. Its significance is that the economic geography of the world has shifted to East and the region stands to be the major beneficiary of that shift, Saidi said. He also attributed high consumption and business spending to increasing domestic credit in the region, which has been growing fast over the past five years with high personal credit in countries such as Qatar, Saudi Arabia and the UAE.
All the variation in GCC countries over the past four years has been in the 80-100 band of the index, indicating strong positive views on the state of the economy. The UAE continues to perform well with little change in consumer sentiment over the past four years. In comparison, there is much more volatility in the index in Egypt and Lebanon, due to uncertainty in the underlying factors affecting consumer sentiment.
In the Middle East and Levant, the UAE ranked third in consumer confidence with Kuwait (93.3) and Saudi Arabia (92.2) taking first and second positions, respectively. In other parts of the world, India is up from 65 to 86 in the current survey, and China sits at 83, indicating high levels of consumer confidence for the two global giants. This is fuelling local consumption, global spending, and driving financial services industry, Saidi said.
The MasterCard index measures consumer confidence in terms of five economic variables – employment, economy, regular income, stock market and quality of life – and shows whether consumers are consistently positive in their sentiments. The UAE’s current score of 78.5 shows consumers are optimistic about the next six months. However, the index is 1.5 per cent lower for the same period last year (80) and 10.3 per cent lower than the last survey conducted six months ago (88.8).
The biggest variable shift compared to last year is in regular income, which dropped eight per cent since last year.
According to Lawson, the dip in regular income expectations is a surrogate for inflationary pressures as well as currency volatility that lowers the value of remittances coming out of the UAE.
“Inflation is reducing people’s disposable income. And because so many people here remit money, their remittance ability has been reduced by the drop in the dollar value due to our peg to the dollar,” he said. Although the UAE is down 10 per cent from the last survey measuring expectations for second half of 2007, it is still stable with an average of about 80 over the past two-and-a-half years.
After hitting record-high optimism in the last half of 2007, consumer confidence in the Egyptian market for the next six months has decreased considerably, according to the latest MasterCard index. The current index score of 65.9 is significantly lower than the scores received in 2007 (94.3 and 78.2 for each half of the year) and in the second half of 2006 (83.0).
However, the score is currently more positive than 2004 and 2005 and is on par with the historical average of 65.5, the report said. Over the past two years Egypt has seen a stable currency, steady foreign investment, and a strong tourism sector. However, high inflation rates have contributed to the fact that people feel less confident as the trickle-down effect of the benefits of the country’s economic improvements isn’t getting down to the man on the street, DIFC chief economist Dr Nasser Saidi said.
MasterCard Worldwide General Manager for the region Denzil Lawson said: “The average person is not yet benefiting from the renaissance happening in Egypt.”
Consumers in Kuwait are highly optimistic, according to its current index score of 93.3.
The country’s score is marginally higher than its 91.6 for the last half of 2007, but below the record high of 94.5 for the first half of last year.
The country’s outlook on employment (96.8), economy (94.5), regular income (97.8) and quality of life (91.0) is among the market highs, with most index scores soaring above 90. Sentiments on stock market (86.5), though having improved compared with the last six months, is still below most previous readings.
The current index of 93.3 is marginally stronger than the market’s historical average of 92.4.
According to MasterCard Worldwide’s Denzil Lawson, over the history of the last four years, Kuwait has been one of the three strong oil producing economies – along with Saudi Arabia and the UAE – that have stayed above the 80 index, showing tremendous consumer confidence.
Consumer confidence in this market at an index of 38.7 remains unchanged from the last half of 2007 (38.6), which is significantly lower than the first half of last year (67.7).
Similarly, sentiments on stock market (32.2 versus 20.5) and quality of life (36.7 versus 22.6) have improved; though they still remain very pessimistic, according to the survey.
In all cases, current sentiments (except on employment 56.4) are pessimistic and significantly below what it was in the first half of 2007 and two of its three preceding readings.
“We’ve seen Lebanon cycle down around the 30s, have one fleeting period of stability where it tipped up to 65, and then we go back to where we were four years ago in terms of the environment,” Lawson said.
Saudi Arabia’s consumers are highly confident for the next six months as they have been earlier, the latest MasterCard Worldwide index shows.
Consumer sentiments on employment (95.6), economy (97.2), regular income (95.5) and stock market (94.4) continue to be very highly optimistic.
However, consumer outlook on quality of life (78.1), though still optimistic, has declined significantly to its lowest level since to start of the index in 2004.
Saudi Arabia over the past four years, along with the other two strong oil producing economies of Kuwait and the UAE, has stayed above 80.
The Kingdom ranks in the second position in consumer confidence, behind Kuwait, in the Middle East and Levant region. However in the face of the depreciating US dollar, mounting inflation remains the most critical policy issue in the Gulf affecting consumer sentiment, Lawson said in his report.
Saudi Arabia, Qatar and the UAE have twin drivers of inflation – strong growth of demand compared to supply raising the prices of non-trade goods and services, and imported inflation.
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