Growing prosperity, improved wealth distribution and a burgeoning middle class are set to fuel a rapid rise in private consumption within the ASEAN bloc countries in the coming years, a trend that will be given further impetus by the greater regional integration that will follow the launch of the ASEAN Economic Community (AEC) in 2015. According to a report by ratings agency Moody’s from late 2013, the ASEAN economies should average growth of 5% in 2014, in part driven by firming global demand. This rise in global economic growth will impact countries that are more export oriented, specifically Malaysia, Singapore and Thailand, the report said. However, the strongest force pushing expansion of ASEAN economies will be domestic consumption, which Moody’s projects will account for half or more of GDP expansion across the bloc.
This growing consumer power within ASEAN is a reflection of the rising strength of the member states’ economies and the more even distribution of wealth within those economies. Over the past three years, the economy of the ASEAN region has grown by an average of just over 6%, its net worth rising from some $1.8trn to $2.3trn. This increase is set to continue. ASEAN leaders set the ambitious target of all but doubling the bloc’s GDP to $4.4trn by 2030 and reducing the rate of those who live in poverty within the region from the present level of around 18.6% to 9.3% in the 15 years following the launch of the AEC. If the GDP target is reached – and given the current compound annual growth rate within ASEAN it could well be achieved – this would create a massive expanded consumer market within the bloc, which will also see its population base increase over the coming decade.
Levelling The Field
While consumer purchasing power is nowhere close to being even within ASEAN, with high degrees of disparity in income levels, national economic development and even access to services, the playing field is beginning to level out. In 2012, the average growth of Indonesia, Malaysia, the Philippines and Thailand was 6.21%, while average growth in Cambodia, Laos, Vietnam, and Myanmar was 6.52%.
Although there is not much difference here, this is set to change in the future. With the narrowing of the gap between national economic growth, consumers in the countries on the second tier of the ASEAN ladder will be better positioned to enjoy the benefits of the AEC, which should further promote growth within the bloc.
Not all ASEAN economies will grow at the same rate, however, and no economy is immune to peaks and troughs. With the AEC in place, export surges in some member states of the bloc can benefit all, with the main beneficiaries of demand in foreign trade. Inversely of course, a sharp downturn in overseas trade for export-driven economies within ASEAN can affect internal trade and regional consumer demand, though this will likely be offset to a degree by the bloc’s own dynamics. Still, greater integration within ASEAN should smooth out some of the worst effects of future downturns. Intrabloc trade already accounts for 25% of all exports by member states, a figure set to climb as final trade barriers are lowered and increased localised investment boosts the capacity of ASEAN members to meet regional demand for products.
Recognising Consumer Strength
Since 2008, foreign direct investment (FDI) inflows to ASEAN have trebled to $111bn, with more than 8% of global foreign investment being drawn to the region. Solid FDI growth is expected to continue into the AEC era as the bloc’s increasing economic strength and consumer buying power attract more overseas businesses looking to tap into the region’s rising prosperity.
While the ASEAN region will face challenges on its path to achieving a more advanced level of economic integration, the overall result will be a net benefit to member countries and the consuming public. Stronger integration will cushion the region from global external shocks such as the 2008 financial crisis, while at the same time developing the world’s largest emerging market. Most of all, a more affluent ASEAN society will propel the further rise of the ASEAN consumer.