Private consumption the weak link in Singapore's
economic expansion
By Lee Ching Wern, TODAY | Posted: 29 January 2007 1302 hrs
When you have an economy charging ahead it grew by 7.7 per cent
last year you would expect cash registers to be ringing non-stop
as more people hit the shops.
But the reality has left economists and retailers scratching their
heads.
Domestic private consumption was estimated to have grown by just
2.8 per cent last year a meagre increase over 2005's 2.5 per
cent, when the economy grew by 6.4 per cent, and a dip from the 5.9
per cent in 2004, when economic growth hit 8.7 per cent.
"Private consumption has been the weak link in this current
economic expansion," said Dr Chua Hak Bin, Citigroup
Economist.
Figures released earlier this month showed that retail sales,
excluding vehicles, grew by 4.4 per cent year-on-year in November
a figure which is not fantastic, say economists. Consumer lending,
too, was lacklustre, expanding by just 2 per cent year-on-year,
according to the central bank.
It seems the CEOs and bankers, who are snapping up luxury homes and
Lamborghinis, are not splurging enough to make up for the average
Joes' lack of spending.
"The big boom has benefited companies more than workers. The
economic benefits are going to those who are well-to-do and who own
capital not the average person," said Dr Chua.
And the impending Goods and Services Tax (GST) hike from 5 to 7 per
cent at one go as signalled by Prime Minister Lee Hsien Loong
is likely to dampen mass spending even further.
One bit of hope: With this increase in revenue, some analysts are
hoping the Government will lower the personal income tax rate,
especially with a corporate tax cut already on the cards for next
month's Budget Day. The trend in other countries has been to lower
both rates, and Mr Lee hinted last week that Singapore could not
buck global trends if it wanted to compete for investments.
However, private consumption has always lagged behind growth in
gross domestic product, and this is a structural issue worth
looking into, said Mr Manu Bhaskaran, Head of Economics Research,
Centennial Group.
"Has globalisation led to a more skewed income distribution?" he
asked.
According to Urban Redevelopment Authority figures for 2006, prices
of high-end private property in prime districts have surged by 17
per cent. Yet prices of mass market condos and Housing and
Development Board flats have grown by only 4.2 and 1.97 per cent,
respectively.
Despite having the smallest population in the region, Singapore
topped the charts in the sales of luxury cars of the Ferrari,
Porsche, Lamborghini, Rolls-Royce and Bentley variety.
Yet retailers and restaurateurs say that sales have not been up to
mark. One local owner of a restaurant chain told Today:
"Surprisingly, sales in December were not as strong as they were in
the peak season in previous years. We're waiting to see if things
will improve over the Chinese New Year period. It's very puzzling
because there's all the hype in the news about a growing economy
yet we're not seeing it."
Mr Song Seng Wun, a regional economist with CIMB-GK Research, noted
that the arrival of budget airlines means that people can easily go
overseas to shop.
Overseas expenditure of Singapore residents tripled between 1998
and 2005, according to Monetary Authority of Singapore statistics.
One in two persons aged 15 and above, or a total of 1.4 million
people, made at least one overseas trip in 2005.
More are spending in neighbouring countries such as Thailand and
Malaysia, where a dollar can go much further. Rival shopping
cities, such as Hong Kong, Kuala Lumpur and Dubai all of which do
not impose a GST are giving Singapore a run for its money.
Said Citigroup's Dr Chua: "Retail sales in Hong Kong, which
recently decided not to adopt the GST, are running at almost double
the pace of Singapore's. For a small open economy, where residents
are travelling abroad, a high GST may have wider negative
consequences."
Even so, he is optimistic of this year's outlook, expecting
domestic spending to accelerate to 4.5 per cent. "The job market is
tightening and wages are creeping up. Together with the picking up
of the mass residential market, these factors can, hopefully,
offset the impact of the GST hike," he said.
Mr Song agreed: "We must remember that last year's consumption
growth rate is coming off the high base of 2004. Things will get
better." - TODAY/sh
