Asia Pacific Markets See Improvement in Consumer Spending Capability

According to indications provided by the inaugural MasterCard Worldwide Index of Consumer Spending Capability (MWICSC), a robust turnaround in consumer spending is expected in 2010 across the Asia Pacific region, with double-digit retail sales growth predicted in China, Hong Kong, India, Indonesia Korea, Malaysia and Singapore as a result of improving fundamentals.

The new Index has been developed to provide insights into consumer spending over a period of a year. While consumer confidence data has typically been leveraged to forecast consumer spending, it is not a leading indicator of spend. The MasterCard Worldwide Index of Consumer Spending Capability builds on the understanding gained from the MasterCard Worldwide Index of Consumer Confidence, combining it with six other key factors that affect consumer spend - (i) household income, (ii) household indebtedness, (iii) interest rates, (iv) equity market, (v) property prices, and (vi) consumer price inflation.

The combination of these factors cover important areas that determine how “capable” households are in a given market to spend in the next 12 months – how much they have to spend (household income after tax, household indebtedness and interest rates), how much of their spending will be underpinned by the wealth effect and their future outlook (property prices, stock market and consumer confidence)  and how much of their intention to spend will be modified by changing price levels (inflation).

The MWICSC data is tracked and compared with the previous year, with year-on-year changes in consumer spending capability providing an indication of the strengthening or worsening of retail sales.

In 2010, all 14 markets (Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, South Korea, Singapore, Taiwan, Thailand, and Vietnam) show positive MWICSC year-on-year changes compared with 2009, indicating rising consumer spending capability moving forward. Key highlights from the region include:

- A dramatic turnaround in consumer spending capability is expected in Hong Kong (+12.5), Korea (+11.9) and Taiwan (+15.5). China’s (+1.9) and Japan’s (+1.2) MWICSC scores have also increased from 2009. The strengthening MWICSC scores suggest that retail sales will grow in these markets in 2010, and double digit retail sales growth is expected in China, Hong Kong and Korea.

- India’s MWICSC shows a robust increase of 9.9 points in 2010, signaling possible double digit retail sales growth for the year.

- In South East Asia, the overall picture is also a positive one, with Vietnam having the strongest increase in consumer spending capability (+17.8). This is followed by Singapore (+9.4), Thailand (+7.2), Indonesia (+7.2), Philippines (+6.6) and Malaysia (+5.7). Double digit growth in retail sales is expected in Indonesia, Malaysia and Singapore.

- Australia and New Zealand are also seeing a strengthening of their MWICSC – an increase of 12.7 points in Australia and 8.1 points in New Zealand. While the MWICSC has increased in Australia, retail sales are expected to grow at a similar pace this year as in 2009, given that sales were driven by an unprecedented level of government fiscal spending in 2009. A modest growth in retail sales is expected in New Zealand.

Dr Yuwa Hedrick-Wong, economic advisor, Asia Pacific, MasterCard Worldwide said, “The new MasterCard Index of Consumer Spending Capability shows that consumers across Asia Pacific are in a much stronger position to spend more in 2010 compared with last year, as well as against the benchmark of their levels of spending in the past ten years. In markets like Indonesia, Hong Kong, Singapore, India, and Malaysia, the increase in their spending capability this year is expected to be particularly strong. The timing of this rise in MWICSC is especially important as governments everywhere are exiting their aggressive fiscal spending programs introduced last year. A rise in MWICSC in Asia Pacific therefore means households are in a position to take up the slack left behind by the withdrawal of government spending to keep domestic demand growing, which will in turn enable the region to better withstand the continued market volatility and uncertainty that is likely to persist through much of this year.”

As men and women across the region become more able to reach for their wallets, what are they spending on?

The latest MasterCard Worldwide Survey on Consumer Purchasing Priorities shows that consumers in Asia Pacific continue to want to wine and dine, with 65% of them planning to spend on dining and entertainment in the six months ahead. Fashion and accessories (44%) comes second, followed by consumer electronics (37%), fitness and wellness, and tuition (both at 32%). This mirrors findings from the previous surveys.

A majority (52%) of consumers in the region plan to maintain their discretionary spending at the same level as it was six months ago, while 18% plan to increase it. Compared to the last survey, fewer consumers are planning to decrease their discretionary spending (30% vs. 34% in the last survey). Consumers in China (26%), India and South Korea (24% each) are the most likely to increase their discretionary spending in the six months ahead, whereas consumers in the Philippines (65%), Indonesia (49%) and Thailand (47%) are prone to reduce their discretionary spending.

Key highlights from the region include:

- Consumers in Thailand (79%), Vietnam (77%), South Korea and New Zealand (73% each) are the keenest to spend on dining and entertainment in the six months ahead.

- Consumers in Vietnam (65%), South Korea (58%) and Japan and New Zealand (50%) plan to glam it up in the coming six months, intending to spend on fashion and accessories.

- Consumers from tech-savvy Hong Kong (53%), Singapore (52%) and Taiwan (50%) are the most likely to spend on consumer electronics in the next six months.

- Consumers from Hong Kong (66%), Indonesia (65%) and the Philippines (62%) are also keeping in mind the less fortunate as they spend, planning to donate to charity in the six months ahead. Across the region, 53% of consumers plan to donate to charity, with 55% of them planning to donate between 1 and 5% of their annual income.

The latest MasterCard Survey on Consumer Purchasing Priorities was conducted from 15 March to 12 April 2010 and involved 10,503 consumers from 24 markets: Australia, China, Egypt, Hong Kong, India, Indonesia, Japan, Kenya, Kuwait, Lebanon, Malaysia, Morocco, New Zealand, Nigeria, Philippines, Qatar, Saudi Arabia, South Africa, South Korea, Singapore, Taiwan, Thailand, United Arab Emirates and Vietnam. Data collection was via internet surveys, personal, telephone and Computer Aided Telephone interviews, with the questionnaire translated to the local language wherever appropriate and necessary.

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