MasterCard Worldwide released a new Insights Report today which assesses the extent to which a slower growing global economy and specifically a slowdown in merchandise exports, will impact the resilience of consumer confidence in key markets in Asia/Pacific and the Middle East.
The report is based on a correlation analysis of the MasterCard Worldwide Index of Consumer Confidence (MWICC) against merchandise export growth for 17 countries across Asia/Pacific and the Middle East. Markets with the highest level of consumer confidence, as well as those that are most resilient to a slowdown in merchandise exports have the strongest potential to weather the economic downturn. At the opposite end of the spectrum, markets with very low consumer confidence and those that are also most vulnerable to a slowdown in merchandise exports have the least potential.
“The strong growth in global demand that we saw during the decade of 2000-2010 was unique in many ways, underpinned by an unprecedented increase in global liquidity which provided a tremendous boost to the export-oriented economies in Asia/Pacific and Middle East. But growth in global demand will be a lot weaker than before. Putting it bluntly, a repeat performance is highly unlikely,” noted Dr. Yuwa Hedrick-Wong, global economic advisor for MasterCard Worldwide, and co-author of the report.
“For many markets in the Asia/Pacific and the Middle East, especially the export-oriented ones, the outlook of a slower growing global economy will mean weaker demand for exports. Thus, their ability to leverage domestic demand, especially private consumption, will be critical in supporting stronger economic growth. The extent to which they may succeed will in turn depend on how resilient consumer confidence is in these markets,” he added.
Export-oriented markets in the Asia/Pacific and the Middle East include Australia, where exports of resource and commodities to China have become the single most important driver of its economy in recent years, and Saudi Arabia, UAE and Kuwait, each of which depend notably on exports of the same. Australia ranked “relatively vulnerable” on the Index, while all Middle East countries ranked as “very vulnerable.” Japan on the other hand, a country with a domestic consumer market second only to the US, ranked “relatively resilient” and topped the list of 17 countries assessed. Similarly, in Southeast Asian markets, those with high merchandise export to GDP ratios ranked lower on the Index (Malaysia, Vietnam), while those with stronger domestic consumer markets (Philippines) ranked higher. The Index placed Singapore and Hong Kong, countries similar in their very high export to GDP ratios– at surprisingly opposite ends of the Index.
Dr. Hedrick-Wong explains: “The sharp contrast between Singapore and Hong Kong illustrates that consumer confidence in different markets can be sustained by very different market specific factors, resulting in significant differences in the resilience of the consumer confidence in response to a slowdown in exports.”
With external demand weakening in the current, uncertain global economy, domestic demand becomes an important factor in sustaining economic growth. The Index of Resilience also evaluated the resilience of consumer confidence and the strength of consumer confidence to begin with, as factors that determine the potential of domestic consumption as a growth engine in a slower growing global economy.
Domestic consumption: potential growth engine in a slow growing economy
The report found Hong Kong, Indonesia, Thailand, Philippines, India and China to be well positioned with the strongest potential to leverage private domestic consumption to support economic growth. While Malaysia, Singapore, Vietnam, Saudi Arabia and Kuwait are relatively strong in terms of consumer confidence, they are also more vulnerable to a slowdown in merchandise exports. Japan’s consumer confidence is very resilient to external shocks, but it is also very low, being stuck in pessimism for over a decade and a half, which is a persistent damper on private consumption. The UAE occupies a position all on its own, with historically strong consumer confidence while being very vulnerable to a slowdown of its exports.
“For 15 of the 17 economies surveyed, exports to Asia/Pacific economies account for more than 50 percent of their total merchandise exports,” said Desmond Choong, an independent research economist.
“Clearly, these correlations between exports and consumer confidence not only assess the resilience of the latter to a slower growing global economy, but they also underscore the relative strength of the linkages between Asia/Pacific’s domestic markets. That is to say these correlations also indicate the degree to which the consumer confidence of some markets may have an indirect impact via increased consumption – and therefore increased imports – on the consumer confidence of other Asia/Pacific markets,” he concluded.
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