February twenty-fourth, two thousand twenty-five

I. Foundation 

resistance to change and hence greater dependability for the results shown in the past.

II. Insights 

Our Viewpoints and ideas on market.

Expectations for China in 2 PMI

China’s 2 manufacturing PMI and non-manufacturing PMI will be released on 3 1, These data will contain some noise and fluctuations, so they are relatively unlikely to be very tradable, although the data themselves will most likely exceed expectations.

This outperformance relative to expectations is mainly driven by workers returning after the Lunar New Year holiday, which should lead to some recovery in manufacturing output.Commodity prices in 2 clearly show strong front-loaded demand in the U.S. market, which also implies a boost to China’s export orders.

As for the non-manufacturing PMI, continued growth in leisure and entertainment spending after the Lunar New Year is expected to provide some support and help the services sector as a whole maintain its expansion. However, it is still too early to tell; the durability remains to be seen, especially as the recovery in global demand is still unstable.

For further reading:Notes 250225Sluggish Asian Consumption: Growth Trends Below Expectations

2025.02.24

III. Market Pulse 

Our latest Comments on the economic and market environment

Sluggish Asian Consumption: Growth Trends Below Expectations

In Asia, although the annual growth rate of household consumption and the GDP share have returned to pre-pandemic levels, seemingly indicating normalization, two key issues are concealed behind the recovery:Two key issues are concealed behind the recovery:

1）Declining marginal propensity to consume:In most economies, the ratio of the increase in household consumption to the increase in GDP remains low, indicating weak consumption momentum.

2) Weak discretionary spending:Data such as retail sales indicate that consumers’ spending on non-essential goods remains weak and that their consumption behavior is cautious.

Take Thailand, for example, the improvement in consumption has been amplified by delayed post-pandemic recovery and weak growth in other components of GDP (especially public consumption); the actual improvement mainly came from the government’s cash subsidy program implemented in the second half of 2024. However, overall, weak consumption reflects structural changes in the post-pandemic economy.But overall, weak consumption reflects structural changes in the post-pandemic economy, for example: new job opportunities are increasingly concentrated in low-wage sectors, household savings have declined, and rising food and public utilities costs are squeezing disposable income.

Labor-market weakness has not yet become widespread, but some key indicators have deteriorated. Among them, Slowing wage growth is a common problem across all major economies, offsetting the boost that easing inflation would otherwise give to real disposable income.In Malaysia and Thailand, nominal wage growth fell to 1-2%, roughly matching inflation, and real income growth nearly stalled. Wage growth in the Philippines, while relatively faster, is showing signs of peaking. Quarterly corporate financial data compiled by the Reserve Bank of India (RBI) show a marked slowdown in labor cost growth. South Korea is in the most serious position: wage growth has slowed while unemployment has risen, further weakening the labor market overall.

Moreover, wage growth in Asia is unlikely to recover in the future.The falling ratio of job vacancies to unemployment indicates weak labor demand, workers’ bargaining power is weakening. At the same time, uncertainty over U.S. tariff policy may continue to weigh on manufacturing companies’ hiring and expansion decisions, limiting wage growth.

With wage growth constrained, households tend to increase savings to restore their financial balance, further suppressing consumption demand. However, household savings remain below normal levels. Household saving rates in India, South Korea, and Thailand fell sharply in 2022-2023, borrowing growth among households in India and South Korea slowed, and Thailand’s real household debt even declined. Indonesia’s household savings share fell after the pandemic, while the share of households with adequate savings declined in the Philippines.As households rebuild savings, consumption will continue to be constrained, further weighing on overall economic growth.

Given weak household consumption, support from fiscal and monetary policy will also be relatively limited.

Fiscal policy supports consumption mainly through tax adjustments, social spending, and cash subsidies.Cash subsidies can help stimulate household consumption in the short term. However, it remains uncertain whether the subsidies will translate directly into consumption. Some households may prefer to save in response to strained household finances and future risks, so the actual boost to consumption will fall short of expectations.

Compared with fiscal policy, monetary policy has a more limited stimulative effect.Terminal real interest rates in most economies remain close to pre-pandemic levels, and are still above them in Indonesia and the Philippines. This means monetary easing has limited stimulative power and is unlikely to lift consumption effectively.Malaysia’s terminal real interest rate has fallen more sharply, but this depends on whether the government can begin adjusting fuel subsidies in the middle of 2025. If subsidies are not adjusted, inflation for the year could be lower, pushing up the real policy rate and weakening the effects of monetary easing.

Against a backdrop of rising global economic uncertainty, household consumption is expected to remain subdued, constrained by slower wage growth, a greater need to rebuild savings, household deleveraging, and limited policy support. This also means that Overall, the three pillars of Asian economic growth in 2025—household consumption, exports, and investment—lack clear growth momentum, potentially causing the region’s growth to fall below its potential.

2025.02.24

Note: All content in this article is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.