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After a robust performance towards the end of 2023, the economy of the Association of Southeast Asian Nations (ASEAN) is expected to strengthen further. The International Monetary Fund (IMF) expects the ASEAN-5 countries – Indonesia, Malaysia, the Philippines, Singapore, and Thailand – to grow by 4.5% this year and 4.6% next year.
2023 growth was largely driven by strong domestic demand, supported by improving labour market conditions and decreasing price pressures. Additionally, the services sector, particularly tourism, continued its recovery, complemented by an early improvement in export demand.
Private consumption is on the uptick, especially in the Philippines and Vietnam. In the Philippines, a “healthy job market and consistent inflows of remittances, among others, supported demand growth for goods and services and led to a higher willingness by households to spend on nonessential items, including restaurants and hotels,” said Denis Bugrov, a senior partner in McKinsey’s Singapore office.
According to the Vietnam Law and Legal Forum, consumption expenditures contributed 53.18% to the economy’s overall growth in the last quarter of 2023.
HSBC projects that in 2024, consumer spending will stabilise and broadly boost economic activity, driven by increased purchasing power as wages outpace inflation. This trend is particularly pronounced in Malaysia, Singapore, and Vietnam.
“And even for countries where wage growth has been more moderate, such as the Philippines and Thailand, consumption is held up by the sheer number of people entering the workforce, thus increasing the aggregate number of consumers in the economy,” HSBC said.
According to McKinsey’s latest quarterly outlook for ASEAN, strong private consumption could be boosted if prices stay moderate and the employment market remains tight. Additionally, government stimulus programs could offer further support.
ASEAN consumer activity losing steam?
However, Vishrut Rana, Economist, Asia-Pacific, S&P Global Ratings expects consumer confidence in ASEAN to weaken over the next few months. “The rapid growth in consumption that marked 2023 should gradually slow down this year amid softening confidence and tightening monetary policy. And more pressure points are emerging, including lower income growth,” Rana said.
The rating agency indicates that while private consumption was a major driver of growth for the region in 2023 – exceeded overall economic growth-, its impact is expected to diminish this year. Instead, external demand is anticipated to be less of a hindrance to growth. Specific challenges, such as weakness in Vietnam’s real estate sector, could significantly curtail domestic economic activity. For 2024, S&P anticipates a more balanced growth profile across ASEAN economies.
That said, S&P Global Ratings nonetheless believes the region will remain the fastest-expanding consumer market globally, thanks to its underlying growth momentum.
As per the World Economic Forum, ASEAN will become the world’s fourth-largest economy by 2030, with a $4 tn consumer market. 70% of the region’s population will become middle-class by 2030, which means a massive increase in the purchasing power of consumers.
“ASEAN is poised to become a dramatic consumption opportunity, driven by four mega-forces: strong demographic trends; rising income levels; geopolitical shifts increasing foreign investment; and digital advances opening new consumer markets,” opines Praneeth Yendamuri, Partner at Bain & Company.
