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Rejuvenating Southeast Asian Economies through Consumer Spending

PRESENTED BY: KIRANJIT SINGH

HEAD OF S3, MALAYSIA

After months of paralyzing lockdowns,

most Southeast Asian countries are now

in the process of easing restrictions and

reopening their economies. Policymakers,

businesses and consumers alike are now

looking forward to an economic recovery,

and a gradual return to normalcy.

SEA is ‘kinda’ open for business again

I s t h e w o r s t o v e r ?

2 ‒ © Ipsos | Rejuvenating Southeast Asian Economies through Consumer Spending

© Ipsos | Doc Name3 ‒ © Ipsos | Rejuvenating Southeast Asian Economies through Consumer Spending

This webinar is

in many ways a

forecast

There is still much we don’t know yet about the pandemic, e.g. if there

will be a second wave or when will a vaccine be ready. What we know is

that the pandemic has imposed tremendous economic pressure and

forced huge adjustments on how we work, play, and live. All these

changes, of course, in turn create pressures on their own that will cause

further changes.

As SEA economies begin to open, the biggest challenge faced by

businesses is lack of demand, both internal and external demand

(e.g. exports)

`


CHINA

The Chinese economy is showing positive signs of recovery.

However many of the major economic indicators are still below the

level of the corresponding period last year despite the improvement.

Notably, many offline consumer industries are still facing difficulties amid

lingering concerns over gatherings and close contact with people.

As such, instead of prioritizing GDP growth, China is focusing more on

supporting enterprises with preferential policies to boost employment

and increase disposable income.

Main goal is to have a consumption-driven economic growth.


Factors to consider in

boosting consumer

demand

This webinar is to look deeper into what is holding back consumer

spending, and what can we, businesses, and policy makers do to

stimulate local demand.

Without demand picking up to pre-pandemic level, private investments

will also dampen. And that will dampen future growth.

o Vietnam

o Thailand

o Malaysia

o Indonesia

o Singapore

o Philippines

SEA


C o l o u r s o f S E A

7 ‒

Major economies in Southeast Asia have seen success in controlling the spread of the virus

Covid-19 Pandemic Curve for SEATotal Cases (Logarithmic)

0

1

2

3

4

5

6

31/12/2019 31/1/2020 29/2/2020 31/3/2020 30/4/2020 31/5/2020 30/6/2020

Indonesia

Singapore

Philippines

Malaysia

Thailand

Vietnam

1,000,000

0

10

100

1,000

10,000

100,000

© Ipsos | Rejuvenating Southeast Asian Economies through Consumer Spending

8 ‒

Relative to the rest of the world, the public health response has been a success

Total Deaths 1,000,000 Population


Total Cases 1,000,000 Population

1,435

268

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

World SEA

67.1

8.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

World SEA

9 ‒

As a result, the major economies have begun easing lockdowns and preparing for a return to normalcy


Timeline for Easing of Lockdowns

April JulyJuneMay

Recording the lowest number of cases in SEA,

Vietnam is the first to begin easing lockdowns.

Other SEA economies have followed suit and have

gradually started to reopen their economies in June.

10 ‒

However, containing the virus has come at an economic cost –economies are set to stall or contract across SEA


2020 GDP Growth Estimates vs 2019 GDP GrowthIMF and ADB Projections

5.0%4.3%

6.0%

3.5%4.2%

7.0%

-1.0%

-4.0% -3.8%

-6.0% -6.5%

4.1%

-0.3%

-3.8% -3.6%

-7.7%-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Indonesia Malaysia Philippines Singapore Thailand Vietnam

2019 2020(ADB) 2020(IMF)

11 ‒

With the largest contractions concentrated in developed economies, external demand is more likely to be a drag rather than a driver for SEA growth


Global GDP Growth

-4.9%Global Trade Volume

-11.9%

Weak External Demand in 2020IMF Forecasts

Significant external dependencies:

Indonesia

Remittances, Exports

Malaysia

Exports, Tourism

Philippines

Remittances, Tourism

Singapore

Exports

Thailand

Tourism, Exports

Vietnam

Exports

12 ‒

As a result, domestic consumption will be the key driver in restarting the post-lockdown economy


Domestic Consumption as the driver for recoveryShare of domestic consumption as % of GDP

57.0% 57.4%73.8%

35.0%48.7%

67.6%

Indonesia Malaysia Philippines Singapore Thailand Vietnam

Domestic consumption accounts for

a large proportion of output for most

SEA economies.

Larger domestic consumption and less

reliance on exports and tourism

generally equates to a more shallow

economic contraction, with the exception

of Philippines which relies heavily on

foreign remittances (8.5% GDP).

?13 ‒

Hence, ensuring a stable recovery in consumer spending will be key for Southeast Asia’s economies


Potential consumer spending trajectories for 2020

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Lockdowns

Forced savings for consumers

as business and consumption

activities are limited.

Post-lockdown spike

Increase in spending due to

pent-up demand.

Ideal recovery scenario

Consumer demand returns

to normal.

Depressed Recovery

Consumer demand fades

after initial spike and takes

longer to return to normal.

14 ‒

To help understand the consumer outlook, let’s look at insights gained from a recent Ipsos research


Timeline for Easing of Lockdowns

April JulyJuneMay

Ipsos Survey

Survey covers consumers in each country, for a

total of 3,000 in SEA.

15 ‒

Our research suggests there are 3 key factors that are affecting current and potential consumer spending


Lower household incomes

Incomes have fallen quickly and significantly across the board for consumers in SEA countries. A slow and

protracted recovery in household incomes will put a damper on consumer spending.

1

Anxiety over Covid-19 remains high

Despite the public health successes, more than 80% of consumers are still worried about the virus, and

worried consumers tend to avoid public places – which generally means less avenues for consumer

spending.

2

Continued uncertainty over the future

Fears over a second-wave and the potential return to lockdowns could further weigh on consumer

spending, as households continue to save in preparation for the worst case.

3

16 ‒

Unsurprisingly, spending patterns over the next 6 months highlight the fragility of a full recovery


Potentially lower consumer spending% of respondents expecting to spend less on eligible discretionary-

spend categories* compared to pre-lockdown (inverted)

Consumers have indicated they do

not expect to spend as much as they

did in the past, at least for this year.

This includes Vietnam, where the

expectation of increased incomes does

not come with proportionately higher

post-lockdown spending expectations.

47%43%

56%61%

44% 44%37%

SEA Indonesia Malaysia Philippines Singapore Thailand Vietnam

*Includes dining out, fashion, cultural activities, travel, electronics, toys, video games, books and alcohol (if

applicable)

© Ipsos | Doc Name

HouseholdIncome


18 ‒

Household incomes across SEA economies have decreased as a result of the lockdowns


Less money to spend% of respondents reporting a decrease in household income during

the lockdown period (inverted)

Unemployment, GDP and other

macroeconomic numbers potentially

understate the economic damage of

the lockdowns.

Household incomes have suffered

during the lockdown due to the

widespread closure of business

activities, and for most of SEA’s self-

employed workers, the lost income will

not be recovered this year.

Household incomes

79% 83%73%

81%

65%

84%89%


19 ‒

For many households, the decrease has been steep and are likely to force them to rethink their spending patterns for the year


Deep cuts to income% of respondents reporting a decrease in household income during

the lockdown period (20% or more decrease, inverted)

Almost half of respondents surveyed

across SEA reported a drop in

income of 20% or more.

Around a quarter of respondents (not

graphed) indicated a more than 50%

decline.

At these levels of decline and with

absence of government transfers,

households will have to change their

spending habits for at least this year.

Household incomes

48%57%

40%

57%

40%

54%

41%


20 ‒

Many of those who have been hit the hardest are also the least optimistic, and could pose a risk to the recovery in spending


No recovery in sightExpectation of income in 6 months for households experiencing

declines (inverted)

More than half of households who

have suffered a decrease in income

do not expect them to recover in

2020.

This trend is especially worrying when

those who have seen the largest

decrease are also more likely to see

further impacts to their livelihoods.

Household incomes

34%25% 21% 22%

25%29% 34%

46%

Decreased by10%

Decreased by 10-20%

Decreased by 20-50%

Decreased by>50%

Income remains at

decreased level

Income expected

to decrease further

Change in 6

months:

21 ‒

Unsurprisingly, these households are expecting to significantly reduce discretionary spending over the next 6 months


Deep cuts in discretionary spendingPost-lockdown net spending patterns* compared to before,

households where income has decreased by 20% or more

Households are expecting to cut

discretionary spending while

spending on necessities.

This is most evident in the contrast

between dining out and groceries for

cooking at home.

If incomes do not recover, spending will

continue to be muted on the categories

most essential for the economy.

Household incomes

-55%

-33% -35%-40%

10%

42%

-60%

-40%

-20%

0%

20%

40%

60%

Dining Out Fashion Electronics Leisure Personal Care Groceries

© Ipsos | Doc Name

Virus Anxiety


23 ‒

Despite the success of containment measures, public anxiety over Covid-19 is still very high across SEA


High level of fear relative to confirmed cases % of respondents worried about contracting Covid-19* and confirmed cases

Health concern over the virus

remains at an elevated level across

the six countries surveyed, with little

relation to the actual spread of the

virus in each country.

Of note is Vietnam, which was in a

phased reopening at the time of the

survey and has the lowest number of

cases amongst surveyed countries, but

still has a comparable level of anxiety to

other SEA countries.

Virus anxiety

84% 86%90%

94%

71%76%

86%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Cases per 1m

population:7,602222 368267 446268

*Includes Very worried and somewhat worried

24 ‒

Fears of the virus could keep consumers away from places where they normally spend


Consumers who are worried stay at home for longerTimeline for resumption of normal routines

High level of concern over the virus

means that many consumers will not

be returning to their pre-lockdown

routines anytime soon.

If not addressed, the months of forced

savings, lost consumer demand and

direct government transfers will not have

much of an effect on the economy in the

longer run.

Virus anxiety

Not Worried Worried

Delay due to

Covid concerns

Legend:

May-Jul

2020

Aug-Dec

2020

Beyond

2020

Visiting friends & family

Dining in a restaurant

Using public transport

Attending a cultural event

Going to sports / gym

Travel domestically

Travel internationally

Timeline

Activity

© Ipsos | Doc Name

Future Uncertainty


26 ‒

Level of optimism is still low in Southeast Asian countries, with perhaps the exception of Vietnam


Optimism towards a recovery% of respondents expecting income to increase in the next 6 months

Expectations on income are a key

barometer of confidence, as

expectations of more cash in the

future often leads to more spending.

Vietnam, which was in a phase of

gradual easing during the survey,

reported a significantly higher level of

optimism of incomes.

38%

49%

19%

41%

16%

37%

67%


27 ‒

Unsurprisingly, spending patterns over the next 6 months highlight the fragility of a full recovery


Potentially lower consumer spending% of respondents expecting to spend less on eligible discretionary-

spend categories* compared to pre-lockdown (inverted)

Consumers have indicated they do

not expect to spend as much as they

did in the past, at least for this year.

This includes Vietnam, where the

expectation of increased incomes have

not come with proportionately higher

post-lockdown spending expectations.

47%43%

56%61%

44% 44%37%


*Includes dining out, fashion, cultural activities, travel, electronics, toys, video games, books and alcohol (if

applicable)

28 ‒

Even households without declines in income show similar behaviour to households with decline with respect to discretionary spending


Those with no income declines will also cut spendingPost-lockdown net spending patterns* compared to before,

households where income did not decrease

These households are expected to

increase spending or at least return to

pre-crisis spending relatively quickly, but

they too expect to spend well-below pre-

Covid levels on non-essential

consumption categories.

Future Uncertainty

*Net spending patterns refers to total spending more – total spending less

-30%

-18% -18%

-30%

12%

36%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Dining Out Fashion Electronics Leisure Personal Care Groceries

29 ‒

Consumers are worried about the impact on incomes should there be further lockdowns


Fears over a possible return to lockdowns % of respondents worried* about incomes if lockdown measure re-imposed

The recent moves by countries to

ease measures and reopen

economies have led to a high level of

concern over a second wave.

For the many households which have

experienced drops in income during the

previous lockdown, the prospect of a

renewed lockdown will act as a further

drain on consumer spending as they

prepare for another hypothetical hit to

their financial condition.*Includes Very worried and somewhat worried

86% 84%

90%93%

79%

86%

92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Future Uncertainty


Are consumers

overly concerned?

There is a fear that the second half of the year could bring

more retrenchments and business closures as government

interventions begin to ease off.

Direct government support has its disadvantages in the long run,

when structural rather than lock-down factors are responsible for

economic problems of companies. In that case, direct government

support to artificially maintain jobs is no longer sustainable.

As such, we may see a second wave of job losses, which in turn

will affect consumer spending.


Are consumers

overly concerned?

The first wave of job losses was due to abrupt shock to the

system. The jobs lost during this period are typically recovered

when demand picks up.

The second wave of job losses will be due to companies finding

efficiency and retooling their businesses for the future. These job

losses are seldom recovered even when demand picks up.

33 ‒

Our research suggests that post-lockdown consumer spending is no longer primarily a function of consumer incomes:


More than just incomesPotential for a self-reinforcing vicious cycle if key risks are not addressed

For policymakers:

Direct government transfers, which put

money into consumers’ pockets, may

not achieve the intended effect

especially when spending is also

constrained by anxiety over the virus.

For businesses:

Existing assumptions about consumer

decision-making and purchasing

processes may have to be re-examined

as virus-related concerns take centre

stage.

Incomes do not recover

Virus anxiety

Future uncertainty

Depressed

consumer spending

Slower Recovery

• Consumers will need to be reassured that the pandemic

is under control, and they should be optimistic that

conditions are improving and gradually returning to

normal.

• Changes in tone highlighting optimism, in both handling

of the virus and in the economic recovery, could go a

long way in instilling confidence amongst consumers.

Balancing optimism and

caution in public messaging

about the virus

34 ‒34 ‒ © Ipsos | Doc Name

• Consumers are financially and emotionally drained from

the lockdown.

• Governments may need to come out more strongly in

communicating a ‘what-if’ scenario if a new outbreak

occurs, and highlight that the response will not

immediately be a return to nation-wide lockdowns.

• This will also require visibly effective public health

measures, which are as important to retain public trust

in government measures.

Assure the public that future

responses to an outbreak will

be more measured and inspire

confidence in current

measures


• Consumers are more price-sensitive post-lockdown, as

they will have lower disposal income.

• Price cuts across the board would be too damaging for

businesses, and hence a more tailored response will be

more appropriate.

• Businesses will need to reconsider how customers see

value in their product offerings – and how much of that

is lost with social distancing.

• An understanding of consumers’ perception of value,

and how they stack up against their predispositions to

the virus will be key in this exercise.

Realign pricing strategy with

new consumer perceptions of

value


• In the post-virus environment, consumers are

increasingly leaning on health considerations in their

decision-making, and businesses need to adapt to that.

• However, equally important is for businesses to

communicate these changes to consumers, and how

these changes prioritize their well-being.

• A marketing narrative built around addressing anxiety

over the virus will provide the reassurances and

confidence for customers to spend.

Building new marketing

narratives around addressing

health concerns


• Social distancing rules have changed the way

customers interact at touchpoints.

• In a low-touch environment, where businesses are

increasingly adopting digital touch points in the

customer journey, businesses need to ensure they

provide the same quality customer experience.

• This means knowing where having a personal human

touch is essential and where digital interactions can be

a substitute.

Balancing digital and human

touch points


39 ‒

• People, businesses, and governments have a

habit of adjusting to changes in an

unpredictable way. They react!

• In doing so, they take matters in new directions.

• So it will be interesting to see what the future

holds.

• Ipsos will be hosting regular sharing

sessions/webinars in the coming month.

Life never runs uninterrupted

ThankYou.

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