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Household spending surge seen to play leading role

A predicted expansion of seven per cent in household spending in 2013 is expected to trigger a 5.3 per cent increase in total food consumption in the UAE, Business Monitor International, or BMI, said.

However, over a five-year forecast period, BMI forecasts total food consumption to increase at a compound annual rate of 6.2 per cent to reach a value of Dh37.5 billion in 2017.

“The outlook for household spending in the UAE remains encouraging, despite anaemic credit growth. We expect that consumer confidence and private consumption in the UAE will remain solid despite ongoing turmoil in global markets and renewed concerns surrounding the strength of the US, eurozone and Chinese economies,” BMI said in its “United Arab Emirates Food & Drink Report Q2 2013”. A recent report by Hay Group noted that 85 per cent of firms in the UAE increased salaries in 2012, while a country-wide average nominal pay rise of 5.5 per cent is forecast for 2013.

BMI also quotes the latest consumer and business confidence surveys by Bayt.com and YouGov that “appear to indicate that household consumption will gradually accelerate over the coming quarters, with both the ‘consumer confidence’ and ‘consumer expectations’ indices trending higher from their December 2011 troughs”.

The report noted that the UAE benefits from high per capita food consumption, which is reflective of a high-income consumer market. The country continues to benefit from a large and high-spending expatriate population. The UAE’s business environment is among the region’s strongest. Investors view the UAE as a more secure investment destination relative to other countries in the region that experienced turmoil associated with the Arab Spring. The UAE also has one of the world’s highest rates of per capita soft drinks consumption.

BMI forecasts that household spending will expand by seven per cent in real terms in 2013, following an estimated growth of six per cent in 2012. “Between 2012 and 2017, we forecast that total food consumption will grow by 34.9 per cent in local currency terms in the UAE to reach a value of Dh37.5 billion,” the report said.

It noted that key drivers behind this forecast growth included the ongoing formalisation of the country’s mass grocery retail sector, population growth and rising disposable incomes, driven by the continued strong growth of the economy. BMI forecast real GDP growth in the UAE at 3.7 per cent in 2013 and 3.8 per cent in 2014.

Both household consumption and fixed investment are set to outperform over the coming quarters. More recently, the UAE has also benefited from the ongoing instability throughout the rest of the region, with a noticeable increase in tourist numbers, the report pointed out.

Soft drinks volume sales are forecast to increase by 3.6 per cent in 2013 and compound annual growth of 3.3 per cent until 2017.

Mass grocery retail sales are forecast to increase by 8.4 per cent in 2013 and expected to record a compound annual rate of 11.2 per cent until 2017. Among the positive trends is the entry of several global fast food chains into the market, the report said.

BMI observed that consumer spending dynamics in the UAE differed according to various emirates, and “there is a significant difference in how people spend money in Abu Dhabi, Sharjah and Dubai in particular”.

issacjohn@khaleejtimes.com