Mastercard Economics Institute: Economic Outlook 2023
December 22, 2022 | Hong KongNew report focuses on the multi-speed global economy, exploring how trends across housing, trading down, prices and preferences, and also omnichannel will impact markets across Asia Pacific and the globe
The Mastercard Economics Institute released their annual forecast for the coming year, which shows how a new multi-speed global economy will impact growth of different countries and consumer spending behavior. “Economic Outlook 2023” draws on a multitude of public and proprietary data sets, as well as models that are intended to estimate economic activity. The 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.
Key findings include:
- 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, we expect housing-related spending as a share of goods to fall an estimated 4.5 percent[1] 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 percent of disposable income, meaning households are at a greater risk of becoming overextended due to mortgage liability. Comparatively, households in Singapore and Chinese Mainland face a lower risk, with the mortgage burden at 86.2 percent and 66.8 percent respectively.
- Hong Kong’s mortgage burden is at 59.6 percent 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, we saw discretionary spending[2] by high income households grow nearly two times as fast as lower-income households. However, much of this gap will diminish with the normalization in inflation. The Economics Institute expects inflationary pressure to ease next year, with the average inflation rate of developed economies falling from 7.1 percent YOY in Q4 2022 to 3.1 percent 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 percent, while a difference of 32 percentage points is recorded when compared to non-affluent cardholders’ discretionary spending, which grew by 30.7 percent, 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.
- Broad spending should remain resilient in the face of inflation, with consumers choosing wallet-friendly brands and chasing the best value ‘essentials’ to keep up their current lifestyles. Globally, grocery shoppers made 31 percent more trips to the store this year compared to 2019 – partially to reduce food waste – while their average spend per visit is roughly 9 percent lower[4]. The Economics Institute expects this dynamic to sustain into 2023 unless food inflation declines.
- In Australia, grocery spending per transaction and spend frequency have increased 9.4 percent and 6.7 percent respectively.
- Meanwhile, spend per transaction in discretionary retail decreased 3.7 percent, potentially reflecting the retail demand that was 'pulled forward' early in the pandemic, with spend frequency increasing 14.9 percent. The Economics Institute expects a slowdown in the growth of spend frequency next year.
- It was also revealed that spending per transaction at restaurants increase by 13.7 percent, while spend frequency also rose 14.5 percent as consumers sought after experience and social connection, and will continue to do so going into 2023.
- 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[5].
- Restaurants with omnichannel presence were saved from losing 31 percent of sales during the height of lockdowns.[6]
- Omnichannel clothing stores outperformed online-only and brick-and-mortar-only firms, growing 10 percent and 26 percent faster, respectively.[7] 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 percent vs. the same period in 2019.
“The relaxing of pandemic border restrictions across Northeast Asia 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. “Across the region, consumer spending 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. 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.”
You can view the full “Economic Outlook 2023” report here. Other reports from the Mastercard Economics Institute can be found here.
[1] Mastercard Economics Institute estimates. Based on an analysis of aggregated and anonymized Mastercard switched volumes (nominal US dollars unadjusted for FX) and national accounts data from various national statistics agencies.
[2] Discretionary spending, as defined by the Mastercard Economics Institute, includes categories of consumption where consumers typically shop for non-essential goods and services. For example, it includes spending at apparel, jewelry, interior furnishings, events, and electronics stores. Non-discretionary spending includes essential categories of consumption such as food and fuel.
[3] Mastercard Economics Institute estimates of average global inflation.
[4] Across a 15-country sample, based on an analysis of aggregated and anonymized Mastercard switched volumes (nominal local currency) through September 2022.
[5] Based on an analysis of aggregated and anonymized Mastercard switched volumes (nominal local currency) through September 2022. Classification of SMB vs. large-sized firms based on a classification model proprietary to the Mastercard Economics Institute.
[6] Across a 12-country sample, based on an analysis of aggregated and anonymized Mastercard switched volumes (nominal local currency) through September 2022, using a fixed panel of merchants to reduce bias in measurement.
[7] Based on an analysis of aggregated and anonymized Mastercard switched volumes (nominal local currency) through September 2022. Classification of SMB vs. large-sized firms based on a classification model proprietary to the Mastercard Economics Institute.
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