Asia is facing a new growth hurdle: a slump in consumption. The region’s battle against anaemic export demand is already in its fourth year. Now domestic spenders, too, are going on strike. The fear that Asia may be unable or unwilling to spend its cheap-oil bonanza is coming true. Without bold monetary easing, growth may tank.
To see why, consider Thailand. First quarter GDP data showed that real, or inflation-adjusted, private consumption grew 2.4 percent from a year earlier. That’s significantly slower than 5.5 percent two years ago. Hong Kong, too, saw a second straight quarter of slowing consumption growth. The 10 percent rise in Chinese retail sales in April was the weakest increase in nine years.
Malaysia did better, but its first quarter GDP was propped up by consumers bringing forward purchases to beat a new sales tax that takes effect on April 1. That euphoria could fade. Like their counterparts in Singapore, Thailand and South Korea, households in Malaysia are struggling to pay down debt, which dims the outlook for consumption.
There is little sign that cheaper energy is making consumers more willing to reach into their wallets. That’s probably because they don’t expect the gains to last. Tepid global demand has already taken a toll on pay in export-dependent Asia. Cheap oil and low inflation means even less pressure on employers to boost salaries. The Economist Intelligence Unit says average real wage growth in Asia-Pacific might improve to 5 percent this year, from 4.5 percent in 2014. That would still make it the worst two years for labour in the region since the 1997-98 financial crisis.
That might explain why policymakers from Beijing to Canberra have overcome their fear of stoking property bubbles to cut interest rates. The GDP-weighted policy rate in Asia-Pacific is now 4.9 percent, the lowest since late 2010. Even then, the case for further stimulus is getting stronger. On May 19, Indonesia loosened loan restrictions for buyers of property and motorcycles.
More easing won’t be a surprise. Consensus expectations of 6 percent-plus growth in Asian GDP this year are squarely pinned on domestic spending. But with consumption emerging as a new growth hurdle, those hopes could stumble.