Ready, set, fall: Singapore’s growth momentum feared to halt in 2H14

Stingy consumers drag sluggish domestic growth.

A decline is in the making for Singapore’s economy in the second half of 2014. This comes on the back of a drop in household consumption, the primary driver of the country’s domestic demand.

According to the Asia Navigator report by RBS, a likely reason for this decline is the lower pace of wage growth in Q114, coupled with the MAS’ efforts to cool consumer loan growth.

“Given the weaker outlook for the household sector, we are revising our 2014 growth outlook lower to 4%, from 4.4% previously. Even this level though represents a substantial 1% positive output gap. Consequently, we expect demand-pull inflation to remain a concern,” noted RBS.

Here’s more from the report:

Growth momentum appears to be fading somewhat as growth in household consumption – the primary driver of domestic demand last year – appears set to slow.

Retail sales ex-auto have fallen 0.8% yoy during March-April. In a reflection of fewer transactions, indicators such as narrow money and credit card transactions have also slowed. A likely reason for this is the lower pace of wage growth in Q1 of 3.2% yoy, compared to 4.2% yoy for 2013.

An additional reason, we believe, has to do with the effectiveness of the MAS’s macroprudential measures, which are designed to cool loan growth, particularly consumer loans. We expect this phase of adjustment to last for some time.

Some reprieve though is likely from rising government transfers starting from Q2 when the new budget kicks in.

Fiscal policy overall is again likely to be expansionary in 2014 with spending budgeted to increase 8.3% for the fiscal year starting in April, though a large part of the increase is due to transfers, which are slated to rise 37.4% and spread over several years.

Nonetheless, this should benefit private consumption. As a consequence, overall consumption should remain above 3% yoy for the rest of the year, in our view.