ASEAN’s 2023 consumption growth will likely stay resilient, even if at a slower pace. Photo: Shopping at a supermarket in Vietnam

2022 recap

Look no further than within. Unlike during the pandemic, ASEAN’s growth driver has shifted to booming domestic demand after global trade headwinds intensified. Indeed, although export-oriented economies, such as Singapore and Vietnam, have felt the pain, they, similar to regional peers, have been benefitting significantly from the re-opening tailwinds.

“While we expect growth to decelerate across the region (except in Thailand) in 2023, consumption should remain supportive of growth, even if it is set to slow, in part, due to base effects”, said HSBC.

Unsurprisingly, private consumption was the largest component of growth across ASEAN. Except Indonesia, household spending has recovered at a pace stronger than that before the pandemic. This holds even for Thailand, where GDP has not recovered to pre-pandemic levels. Malaysia and Singapore, in particular, stand out with double-digit growth in spending. The latter was even more impressive, considering its earlier rebound. The Philippines and Vietnam have also seen punchy recoveries in their respective consumption.

Firm recovery in retail sales

In the case of Indonesia, despite relatively slower consumption growth, consumer spending was robust in 2022. In fact, domestic growth overtook export growth. Household consumption was likely led by further re-opening and rising mobility, as well as some sequential disinflation raising real purchasing power.

Let’s examine the nuances in detail. The firm recovery in retail sales is shared (almost) across the region, though Indonesia is still lagging. Retail sales in Malaysia and Vietnam reached around 20% higher than before the pandemic, followed by Thailand, the Philippines and Singapore, where retail sales returned to pre-pandemic levels.

In HSBC’s view, another indicator to watch is spending on big-ticket items. Momentum in automotive sales were again strong in Malaysia and Indonesia, with Singapore consistently falling. It was not entirely surprising: after all, Singapore’s skyrocketing Certificate of Entitlement (CoE) prices for owning a vehicle deterred some sales.

In the Philippines and Indonesia, around 40% of spending went to food and beverage, partly due to high food inflation in both economies. Indeed, surging food prices in the former have been the main culprit for accelerating inflation. Certain food items in the latter have become more inflationary recently and need to be watched, although, for now, they are unlikely to come in the way of softening headline inflation. In contrast, Singapore’s consumers spend the least on food across ASEAN but instead have a large weighting for “recreation and culture” consumption. As one of the first Asian economies to recover from the pandemic, Singapore is also one of the first to see consumption tilt from goods to services.

Indeed, ASEAN has largely benefitted from booming pent-up travel demand, followed the full-scale re- opening since March 2022. That said, it is an uneven recovery story. ASEAN’s transport sectors have seen a quicker recovery than its accommodation and food; beverage sectors. In particular, Vietnam and Indonesia stand out, partly thanks to their quick recoveries in domestic tourism that offset the weakness in international tourism.

Unsurprisingly, HSBC said Thailand lagged behind, given its heavy exposure to inbound tourism and Chinese tourists. However, it believes this will soon change, after China’s re-opening. In particular, China announced the resumption of group tours to around 20 countries, including ASEAN-6 (except Vietnam), bringing hopes for a faster-than-expected return of Chinese tourists. That said, the speed of the recovery largely depends on how fast international flights can be restored. After all, even for Singapore, the main travel hub, direct flights with China only reached less than 10% of pre-pandemic levels by January.

2023 outlook

Where consumption heads in 2023 depends on multiple factors, including inflation, fiscal policy, consumer sentiment, labour market recovery and saving rate. “We discuss each factor in detail and explain why we expect consumption to hold up this year”, emphasized HSBC.

First and foremost, inflation remains a key concern among consumers. Fortunately, most ASEAN economies passed the peak of inflation, though the Philippines and Vietnam have continued to see intensifying price pressures. That said, inflation will likely moderate gradually, suggesting elevated price pressures at least through 1H23. After all, core inflation has been rising in most economies, reflecting a buoyant labour market. Even in the case of Singapore, an early mover and provider of generous fiscal subsidies to directly save jobs, its labour market remains tight with high wage growth trending above historic levels.

That said, most policymakers in ASEAN are unlikely to implement substantial consumer-friendly fiscal measures. After all, after three years of hefty support in some economies, there is a regional consensus that ASEAN needs to pursue a fiscal consolidation path, although some outpace others. Malaysia and the Philippines are two likely examples of a slower fiscal pace. With its budget due in less than two weeks, the former will likely introduce a largely similar revised budget for 2023 to the one announced by the previous administration. The latter has started 2023 with a reduction in personal income taxes.

Indonesia is aiming to revert to its pre-pandemic fiscal deficit of 3%, but Thailand’s fiscal outlook may be uncertain, given the upcoming elections in May. In the case of Singapore, the FY2023 budget included additional fiscal measures to offset the rising cost of living, though they were targeted in nature.

Even if most ASEAN economies will likely taper fiscal relief, consumer sentiment in ASEAN remains high. Indonesia’s consumer sentiment has returned to its pre-pandemic level, with Malaysia showing a similar trend. That said, Thailand’s consumer sentiment remains tepid as the country’s recovery lags behind that of regional peers.