FRIDAY, March 29, 2024
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The beauty (to some) of economic slowdown

The beauty (to some) of economic slowdown

Talk of economic slowdown usually conjures up all sorts of negative things. Yet that shouldn’t necessarily be the case.

The current slowdown has in effect encouraged consumers to be wiser – choosing value-for-money items.
 That’s true in China, where gross domestic product expanded by just 6.9 per cent in 2015, the lowest annual growth in 25 years. Yet, consumption – accounting for 66.4 per cent of its GDP in 2015, is expected to grow at a quick pace in 2016. 
According to China Daily, power use by the service sector jumped 10.9 per cent year on year in the first three months, up 4 percentage points from a year earlier. Power use by Chinese households grew 10.8 per cent, up 8.2 percentage points.
Though overseas spending on luxury items by Chinese tourists declined 24 per cent in March, according to tax-return-service company GlobalBlue (the first decrease since records began in 2010), domestic consumption remains resilient. According to a report by McKinsey, shoppers have been shifting their focus to premium segments, giving new opportunities to local and foreign manufacturers.
A similar growth slump has hit Thailand. From nearly 10 per cent decades ago when the country first embraced industrialisation, Thailand’s GDP growth averaged 0.94 per cent from 1993 until 2015.
Retail sales in general are expected to grow by only 2.8 per cent this year, but shopping malls are still crowded. Luxury fashion brands are still selling well among wealthy Thais and foreign tourists. An executive of one such brand told me Thai sales revenue is targeted to increase this year, despite the generally gloomy economic outlook.
Minor Corp, a leader in imported fashion brands, is as bullish as ever. It recently announced plans for at least four new lifestyle products this year, and is exploring merger-and-acquisition opportunities and as well as launching its own brands. Sales revenue on imported brands is set to increase by 14 per cent on year to Bt3 billion. Of that total, Bt100 million will come from Brooks Brothers, the nearly 200-year-old heritage American fashion brand that’s in the same league as Hugo Boss and Ralph Lauren. Minor prices Brooks Brothers products 10-15 per cent above retail prices in the US, to encourage purchases in Thailand.
These companies did not say it outright but their actions signal that there are a plenty of buyers out there willing to spend as long as quality goes along with prices. The strategy works well for the wealthy and middle-income earners sitting on savings. For them, the economic slowdown offers opportunities, since prices, (except the absurd food prices), can’t be raised quickly. Who would imagine that a 40-inch smart Sony TV, launched with a price tag of over Bt20,000, would now be being sold in a promotion for Bt15,000? However, that deal can’t be enjoyed by those who have stretched their credit card to the limit.
It’s good to see, however, that more Thais are waking up to the benefits of financial planning. Preparation for retirement is one thing, but opportunities to grow income via investments should also be grabbed, especially when the majority has no such capacity. Economic slowdown also highlights the need for better planning.
A friend of mine is now interested in becoming a professional financial planner. Armed with a licence to sell insurance, she is now attending training sessions and preparing for the necessary tests. Notably, taxpayers are now scrambling for such advice. They have learned about a variety of options for saving tax, but they aren’t sure how to allocate their savings according to their financial needs.
My friend is now seeking information on the performance of retirement management funds, to see which one fits her profile.
Soon, she will get to know more about other instruments, particularly equity funds that promise higher returns (with greater risks), so that she can properly advise her future clients. That scope of interest will be expanded to foreign investment funds, something that will open her world to global fund movements.
If it encourages people to think more, a slowing economy cannot be totally bad.
Ask Warren Buffet, the world’s most successful investor, and he would concur. Buffett grew his business largely during slowing periods in the US. When most investors lost money with high-priced stocks, stocks with prices below their intrinsic worth witnessed a price slump – and Buffett moved in. 
Well, few of us have the means or insight to do that. But it represents just one example of why economic slowdown can be beautiful – to some. 
 
 
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