A new multi-speed global economy will impact growth of different countries and consumer spending behaviour, according to the Economic Outlook 2023 report of the Mastercard Economics Institute.
The Economic Outlook 2023 report explores four themes that will continue to shape the economic environment in countries and cities around the world, including Hong Kong and the Asia Pacific region — high interest rates and housing, trading down and shopping around, prices and preferences, and shocks and omnichannel, the institute said.
When it comes to the economic outlook 2023 for Northeast Asia, the institute is particularly optimistic.
Across Northeast Asia, the relaxing of pandemic border restrictions is set to be a big swing factor for Asia Pacific as we head into 2023, said David Mann, Chief Economist of Mastercard AP & MEA.
Consumer spending across the region has broadly recovered to pre-pandemic levels, although consumers are responding to higher inflation by 'trading down' brands and stores where they can be more frugal on necessities, he added.
“This is making way for “reopening euphoria”, especially for tourism-dependent economies, with travel, hospitality services and experiences holding strong as a share of total consumer spending,” Mann noted.
Economic Outlook 2023 highlights
- After years of a housing boom, higher interest and mortgage rates are expected to squeeze cost of living budgets, shifting the way consumers spend broadly. Looking ahead, 2023 will be a year where many markets run at different speeds.
- In major developed countries, housing-related spending as a share of goods is expected to fall an estimated 4.5% over the course of 2023, below pre-pandemic levels.
- In Asia Pacific, households in some markets will face a more significant mortgage burden than others.
- Australia is found to be high on the list, with the mortgage burden at 177.5% of disposable income, meaning households are at a greater risk of becoming overextended due to mortgage liability.
- Comparatively, households in Singapore and China face a lower risk, with the mortgage burden at 86.2% and 66.8% respectively.
- Hong Kong’s mortgage burden is at 59.6% of residents’ disposable income, indicating that Hong Kong households are also at a lower risk of becoming overextended due to mortgage liabilities.
- As food and energy costs eat up a greater share of the consumer budget, lower-income households will feel an especially strong pinch.
- From 2019 to 2022, discretionary spending by high income households grow nearly two times as fast as lower-income households.
- However, much of this gap will diminish with the normalisation in inflation. The Economics Institute expects inflationary pressure to ease next year, with the average inflation rate of developed economies falling from 7.1% YOY in Q4 2022 to 3.1%YOY in Q4 2023. 3
- Consumer spending has broadly recovered to pre-pandemic levels in Asia Pacific, with highly diverse household income levels across the region having resulted in stark differences in how consumers spend.
- In high-income countries such as Hong Kong and Singapore, reopening euphoria continues to dominate as retail strength goes beyond essentials like food and energy to travel and discretionary retail. In low- to middle-income countries like Malaysia and Thailand, out-and-about categories like clothing and food continue to do well.
- Zeroing in on Hong Kong, discretionary spending for affluent cardholders grew 63.1%, while a difference of 32 percentage points is recorded when compared to non-affluent cardholders’ discretionary spending, which grew by 30.7%, meaning higher-income households have been more resilient against higher prices during the pandemic than lower-income households who have had to pare back discretionary spend to a relatively larger extent.
- In 2023, the Economics Institute suggests that travel, hospitality services and experiences will continue rising as a share of total consumer spending, while the share of big-ticket durable goods declines.
- Businesses with an omnichannel presence are more likely to withstand shocks by meeting the customer where they want to shop, as well as by broadening brand awareness, product offerings, sales, and flexible, targeted pricing structures.
- The analysis suggests that having a multichannel presence provided 6-percentage point lift in retail sector sales through 2022.
- Restaurants with omnichannel presence were saved from losing 31 percent of sales during the height of lockdowns.
- Omnichannel clothing stores outperformed online-only and brick-and-mortar-only firms, growing 10% and 26% faster, respectively.
- It will remain vital in 2023 given the return to in-person spend, coupled with a segment of consumers who are now accustomed to purchasing clothes online.
- Interior furnishing retailers having an omnichannel presence recorded continued growth of 15 percent above the same month in 2019 during the peak pandemic period for most countries, against the suffering of their brick-and-mortar counterparts with a decrease of 16% vs the same period in 2019.