India Emerges as a “Relatively Resilient” Market with Stable Consumer Confidence

MasterCard Worldwide released a new Insights Report which assesses the extent to which a slower growing global economy and specifically a slowdown in merchandise exports, will impact the resilience of consumer confidence in key markets in Asia/Pacific and the Middle East.

 The report titled “Consumer Confidence in a Weak Global Economy: An Index of Resilience 1Q, 2013”, is based on a correlation analysis of the MasterCard Worldwide Index of Consumer Confidence (MWICC). The Index is Asia/Pacific’s most comprehensive and longest running consumer confidence survey - against merchandise export growth for 17 countries across Asia/Pacific and the Middle East. Markets with the highest level of consumer confidence, as well as those that are most resilient to a slowdown in merchandise exports have the strongest potential to weather the economic downturn.

 “The strong growth in global demand that we saw during the decade of 2000-2010 was unique in many ways, underpinned by an unprecedented increase in global liquidity which provided a tremendous boost to the export-oriented economies in Asia/Pacific and Middle East. But growth in global demand will be a lot weaker than before. Putting it bluntly, a repeat performance is highly unlikely,” noted Dr. Yuwa Hedrick-Wong, global economic advisor for MasterCard Worldwide, and co-author of the report.



“For many markets in the Asia/Pacific and the Middle East, especially the export-oriented ones, the outlook of a slower growing global economy will mean weaker demand for exports. Thus, their ability to leverage domestic demand, especially private consumption, will be critical in supporting stronger economic growth. The extent to which they may succeed will in turn depend on how resilient consumer confidence is in these markets,” he added.



India ranked an overall fourth on the new MasterCard Consumer Confidence Index as a market whose consumer confidence is less affected by changes in its merchandise exports. India’s consumer confidence is ‘neutral’ with respect to changes in merchandise export growth. Moreover, India's consumer confidence regarding employment and regular income is more resilient than the overall consumer confidence to changes in merchandise export growth and has found a place in the “relatively resilient” and “very resilient” categories.

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India is a less export- oriented economy and has a large domestic market implying that there are other important domestic determinants of consumer confidence, and as such consumer confidence is not as easily eroded by a decline in their exports.

 Export-oriented markets in the Asia/Pacific and the Middle East include Australia, where exports of resource and commodities to China have become the single most important driver of its economy in recent years, and Saudi Arabia, UAE and Kuwait, each of which depend notably on exports of the same. Australia ranked “relatively vulnerable” on the Index, while all Middle East countries ranked as “very vulnerable.” Japan on the other hand, a country with a domestic consumer market second only to the US, ranked “relatively resilient” and topped the list of 17 countries assessed. Similarly, in Southeast Asian markets, those with high merchandise export to GDP ratios ranked lower on the Index (Malaysia, Vietnam), while those with stronger domestic consumer markets (Philippines) ranked higher. The Index placed Singapore and Hong Kong, countries similar in their very high export to GDP ratios– at surprisingly opposite ends of the Index.

Index of Resilience of Consumer Confidence

China and India are found to be at roughly the midpoint (neutral) between very vulnerable and very resilient in their consumer confidence, with the correlation coefficients estimated to be 0.37 and 0.34 respectively. The results may seem counterintuitive as China is so much more export oriented than India. However, both China and India have very large domestic markets, and their merchandise exports as a percentage of GDP are not that different: 26.1% in China and 18.7% in India (though China’s GDP is more than four times larger).



Thus, consumer confidence in both markets is affected by export performance only to a limited degree. Their large domestic markets suggest that there are other important domestic determinants of consumer confidence, and it is not easily eroded by a decline in their exports.



Domestic consumption: potential growth engine in a slow growing economy

With external demand weakening in the current, uncertain global economy, domestic demand becomes an important factor in sustaining economic growth. The Index of Resilience also evaluated the resilience of consumer confidence and the strength of consumer confidence to begin with, as factors that determine the potential of domestic consumption as a growth engine in a slower growing global economy.



The report found Hong Kong, Indonesia, Thailand, Philippines, India and China to be well positioned with the strongest potential to leverage private domestic consumption to support economic growth. While Malaysia, Singapore, Vietnam, Saudi Arabia and Kuwait are relatively strong in terms of consumer confidence, they are also more vulnerable to a slowdown in merchandise exports. Japan’s consumer confidence is very resilient to external shocks, but it is also very low, being stuck in pessimism for over a decade and a half, which is a persistent damper on private consumption. The UAE occupies a position all on its own, with historically strong consumer confidence while being very vulnerable to a slowdown of its exports.

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