Singaporean Consumer Consumption and Confidence is Weak - Should Investors Worry?
Published on October 11, 2013
Singapore is the world’s 35th largest economy by nominal GDP, yet ranks 6th in the world by GDP per capita, signifying its position as an advanced and highly-productive economy. With an efficient regulatory framework, low tax rates, and a flexible labor market, Singapore has a reputation for being one of the most business-friendly countries in the world. The country also boasts a technologically-advanced society with excellent physical and network infrastructure. Its economy is highly-advanced, with business services accounting for about 75 percent of GDP, due to the country’s position as a leading banking, trading, insurance and asset management center. And while public debt is relatively high, the country is running a fiscal surplus of almost 2 percent and its net financial-assets position is positive, providing a large cushion against external shocks.
Despite these positive contributors to growth, personal consumption and consumer confidence in Singapore are lower than one would assume. Personal consumption in the country is growing by just 2.7 percent year-over-year, which is a slower pace than to be expected given favorable labor market dynamics – Singapore’s unemployment rate checks in at 2.1 percent. To that end, consumer confidence is also at a relatively low level compared to the average readings of the last decade.
Nevertheless, much of the weakness in Singapore’s consumer dynamics can be explained by its economy, which has high leverage to global markets due to the country’s status as a global financial and international trading hub. The weak European and Asian growth dynamics over the last several years have kept the consumer’s outlook cautious, as the island’s residents have feared a spillover of negative impacts on the local job market.
An additional important factor explaining some of the recent consumer weakness is that over the last several years, the average Singaporean has increased their exposure to leverage, even as the economy has slowed. Today’s aggregate household debt-to-GDP is estimated to be around 77 percent of GDP, compared to 65 percent just four years ago. The statistics show that most of this growth came in the form of mortgage debt. Housing loans are now 60 percent of total consumer debt, compared to 51 percent in 2010.
The Singaporean government has shown concern over this development, especially as housing prices have climbed into record territory fueled by record low interest rates. In recent months, faced with evidence that property prices were once again re-accelerating, the government has widened its four-year campaign to curb property speculation, by limiting foreign transactions and by instituting harsher credit terms for property loans to individuals.
While households have become more exposed to consumer debt, it bears remembering that Singaporeans are notorious savers with gross national savings estimated at close to 46 percent of GDP. Singaporeans score very high on net worth metrics, earning the title of the world’s richest population, with an estimated 17 percent of resident households possessing private wealth in excess of $1 million. Singapore’s consumer may not be feeling all too confident at the moment but given stable and low unemployment, high levels of savings and wealth, as well as continuing foreign-population growth, our outlook on the Singaporean consumer is neutral to positive.
© Manning & Napier
