By: Leong Sze Hian
I refer to ValuePenguin’s article “Household Debt in Singapore – Trends and Causes Analyzed” (Yahoo Finance, Jan 6).
Household debt is growing dramatically
It states that “household debt is growing dramatically as a percent of household assets. Such trend was especially true for personal loans and credit card debt, which now account for over 22% of total household liabilities in Singapore, up from 16% in 2007.
Household debt reached a record 61.1% of GDP
In the 2nd quarter of 2016, household debt reached a record 61.1% of GDP in Singapore.
At 61.1%, Singapore’s current household debt to GDP ratio is lower than the United States (78.8%) yet higher than is currently found in the Euro Zone (58.9%) or China (41.85%).
More levered than their counterparts in the US or Korea
Singaporean households are more levered than their counterparts in the US or Korea, with asset to equity ratio reaching 120% for Singaporean households compared to 80-90% for US and Korea.
Decrease in consumer spending will create a cyclical cooling cycle
The concern now is that this decrease in consumer spending will create a cyclical cooling cycle. This type of economic slowdown can tend to “snowball” in the following way:
- Consumer spending declines
- Economic growth slows
- Wage growth and economic opportunities stall or decline
- Consumers find it harder than ever to pay off their existing debt obligations.
The cycle then repeats itself…”
3 unique factors compounding low consumer spending?
Singapore’s already very low consumer spending may be further compounded by the following, factors, which are arguably unique to Singapore:-
… Up to 38 per cent of income goes to the contribution to CPF, which reduces disposable income
… From a cashflow perspective – we may not be spending any money on CPF, HDB or healthcare. Thus, increasing the financial strain on consumers, and reducing disposable income.
… Average annual cash budget surpluses (under IMF fiscal reporting guidelines) of about $20 billion a year. This may also impact consumer spending as arguably, less spending by the Government may translate into greater spending by citizens on basic essentials of living – and less disposable income.
Economic and social development model not sustainable?
Our unique economic and social development model may not be sustainable anymore.