Hard economics damps Southeast Asia consumer dream

Multinational companies drawn to Southeast Asia by hopes of a long consumption boom are witnessing a reversal of fortunes in its three biggest economies as shoppers lose their mojo.

Household debt, sluggish wage rises and political uncertainties are dragging on spending growth in Thailand, Indonesia and Malaysia.

Urbanisation and a growing middle class will continue to drive long-term thirst for goods from cars to fridges in the 10-country Association of Southeast Asian Nations, economists say, but the dream of miracle growth now comes with qualifications firmly attached.

"Corporate executives were rubbing their hands because of spending in Asean," said Frederic Neumann, co-head of Asian economic research at HSBC. "In the long term that may well hold - but this soft patch in household spending is likely to stay for quite a while."

Indonesia's economy - Asean's largest by far - slowed to its lowest pace of annual growth in more than five years in the first quarter of this year, driven in part by a fall in government spending and flat consumer demand.

Thailand, the region's second-biggest economy, has seen consumer confidence steadily decline alongside rising household debt. Malaysia, number three in Asean, has recorded weak manufacturing wage growth and credit card spending.

Global winds are buffeting this region of more than half a billion people, due to launch a single market later this year. Spending in Asean is normalising after a post-financial crisis binge, while member states are also hit by the economic slowdown in their neighbour and crucial trading partner China.

"Consumption downturns in Asean are cyclical," said Anthony Nafte, a senior Asia economist at CLSA brokerage in Hong Kong. "But there are aggravating factors in individual economies."

One big drag on consumer spending is rising household debt in countries such as Thailand and Malaysia. Rural income has also been falling sharply in some areas because of depressed prices for commodities grown there such as rubber and rice. Earnings in Thailand's countryside fell 12.5 per cent year- on-year in the first quarter of this year, according to CLSA.

Cars have been one of the worst affected consumer sectors in the region, with sales tumbling 12.1 per cent year-on-year in March in Indonesia - the seventh straight fall. In Thailand, the industry has been hard hit by the end of generous government tax breaks on new purchases. Kevin Kwek, a senior analyst at Bernstein Research in Singapore, argues that Indonesia is suffering a "temporary fallback", whereas in Thailand the decline is more serious because its population is ageing and the proportion of wage-earners falling.

Political nervousness has also damped consumer appetites for high-value goods. Thailand is still in flux after last year's military coup, while Indonesia's President Joko Widodo is grappling to assert his authority. Malaysia's government has faced a scandal over a debt-loaded national development fund.

While the Southeast Asia spending juggernaut has not stalled region- or sector-wide, it has certainly slowed: the question now is how much and for how long.

"This has temporarily pulled the brakes on consumption," says Rahul Bajoria, a Singapore-based regional economist with Barclays. "But I think the trend can revive again."

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