https://www.straitstimes.com/business/why-are-singapore-consumers-still-spending-despite-rising-inflation-and-higher-costs-of-living
Why are Singapore consumers still spending despite rising inflation and higher costs of living?
SINGAPORE - Inflation in Singapore, like other major economies, has soared post-Covid-19 pandemic, but the elevated cost of living has not put the brakes on consumer spending.
Economists say that while consumption may be starting to retreat for some, overall spending momentum is still going strong.
They believe a key factor is that people have jobs and are confident that they will be able to pay off their mortgages and credit card bills.
Official data showed that Singapore’s unemployment rate in the first quarter of 2023 remained low at 1.8 per cent, even though labour demand in the country is starting to cool as retrenchments rose for the third consecutive quarter.
“Despite all this talk of a possible recession, the bottom line for people here is that they’re fully employed. They believe they should and can travel,” CIMB economist Song Seng Wun told The Straits Times.
He said labour market conditions have not weakened significantly.
Mr Song expects card spending to rise these two months as people plan or go on holidays and snap up concert tickets.
Maybank’s co-head of regional research Chua Hak Bin told ST that as long as the unemployment rate remains low, there will be big spenders who may have the savings and steady wages to spend more on experiences, travel and leisure.
The pent-up demand for entertainment has led Hong Kong singer Jacky Cheung to add more shows to his upcoming stop in Singapore, while visiting Western musical acts like Coldplay and Taylor Swift have done the same.
DBS economist Chua Han Teng said that besides local demand, the upcoming concerts have also attracted fans from the region. That is a sign that international travel is normalising after the pandemic, and it lends some support to Singapore’s tourism activity.
UOB senior economist Alvin Liew said consumption in Singapore has held firm as most households remain financially stable.
“The sound monetary policy and strong Singapore dollar may also be another factor for high consumer confidence among Singaporeans,” he said, adding that this has made it more affordable for locals to travel in the region despite higher airfares.
Banks have said that credit card expenditure rose in 2022 compared with the 2019 pre-pandemic period, and they expect the trend to continue in 2023.
Official data showed that the credit card rollover balance in 2022 rose to $6.2 billion from $5.3 billion in 2021.
A rollover balance reflects consumers’ purchasing appetite, as it is the outstanding amount owed by cardholders that is transferred to the next billing cycle.
On big ticket items like housing, buyers are also holding firm despite fresh cooling measures, be it in the public housing resale market or private housing market.
Aggregate household sector debt as a share of personal disposable income eased further to 1.3 times in the third quarter of 2022, driven by strong wage growth relative to the increase in household debt, said UOB’s Mr Liew.
But he warned that high interest rates are raising the debt servicing costs for households, and this would increasingly constrain consumer spending.
That said, noted Mr Song, the fear of missing out is very strong when it comes to the property market.
He added that Singapore’s image as a safe haven has drawn people to the city to live and set up businesses.
This confidence has stayed even as companies in the banking, fintech and tech sectors are cutting jobs.
One reason is that, while there are some segments of a sector that do poorly, there are others that perform well.
“We call it a half-full economy, with manufacturing in recession but some services sectors still doing relatively well without the reopening,” said Maybank’s Dr Chua.
In the labour market, some white collar jobs are being cut, but blue collar jobs are plentiful, with shortages in many areas, he added.
Pressure is mounting on various fronts though, and this could weigh on consumer spending in the months ahead.
Singapore’s manufacturing output shrank for an eighth straight month in May, adding to the risk of a technical recession, defined as two consecutive contractions in real gross domestic product.
Meanwhile, higher inflation, rents and interest rates are starting to strain consumers’ wallets, said Dr Chua.
He noted that Singapore real retail sales growth, which better reflects real consumer spending, slowed to 1.4 per cent in April, down from the peak of about 14 per cent in May 2022.
Rising global inflation rates have led central banks to raise interest rates as they struggle to counter the worrying trend.
In Singapore, the local currency has been allowed to strengthen to counter inflation.
Official Singapore data showed that both core and headline inflation eased in May, a sign that consumer prices may have peaked.
Perhaps respite could come soon, as economists are expecting inflation to moderate throughout the rest of 2023.
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