Singapore consumer spending to normalise from 2022: Fitch Solutions

WITH fewer restrictions and an ongoing vaccination programme, Singaporeans' real consumer spending is likely to improve over 2022 after suffering from Covid-19 related restrictions over the past years, said Fitch Solutions Country Risk and Industry Research in a report on Wednesday (Jan 19).

The unit of ratings agency Fitch Group is expecting real household spending to increase by 3.1 per cent over 2022 to support overall consumer spending going forward.

While this is lower than the 6.6 per cent real rate estimated for 2021, the research house said that household spending is returning to its medium-term growth trajectory from 2022 to 2026, which had contracted and expanded "significantly" from the economic impact of Covid-19 in 2020 and 2021.

Household debt as a percentage of Singapore's gross domestic product also presents "very little risk" to consumer spending over the medium term, said Fitch Solutions. It expects medium-term household spending to stay at 2.5 per cent a year.

The projected partial recovery in real consumer spending comes as part of Fitch Solutions' forecast that the economy will grow by 3.6 per cent in 2022, together with a possible decline in unemployment to 2.2 per cent.

"Economic growth in 2022 will be underpinned by a recovery in the country's tourism industry as authorities continue to add new countries to the Vaccinated Travel Lanes scheme," it said, adding that it expects tourist arrivals to jump by more than 4 times over 2022.

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In addition, there was a "noticeable uptick" in retail sales since August 2021, which Fitch Solutions believes may indicate that retail sales may soon return to pre-pandemic levels, and October 2021 saw retail sales hit an index score of 93.5 per cent, just below the 100 recorded in October the year before.

However, Fitch Solutions observed that overall retail sales have remained low, averaging at an index score of 93.5 in 2021, which is 12 per cent higher than the 83.4 average in 2020 but 6.5 per cent lower than the 99.9 per cent recorded in 2019.

As for Covid-19's impact, Fitch Solutions expects hospitalisations and deaths to remain relatively low during future waves. Consumer recovery largely rests on Singapore's ongoing inoculation programme, as a drop in infections and hospitalisation would allow authorities to lift restrictions and boost consumer confidence.

While Fitch Solutions' predictions takes into account risks like the easing of government support, the report cautioned that newer, more transmissible Covid-19 variants could result in falling vaccination effectiveness and extend restrictions, which would limit consumer spending and put downward pressure on wages.

Furthermore, the research team noted that the first half of 2021 may see rising consumer price inflation, which is a key risk to consumer spending in 2022 as it has the potential to "erode purchasing power" in Singapore.

Inflation has been ticking upwards due to base effects, higher commodity prices and supply chain challenges, reaching a high of 3.8 per cent year on year in November 2021, which was mainly caused by higher services inflation and electricity and gas prices increasing 10 per cent year on year.

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