SINGAPORE - Real private consumption next year is likely to rise by 4 per cent amid real wage growth and a tight labour market, but consumers may continue to be weighed down by the threats of rising imported inflation.
That is the finding of a Fitch Solutions Macro Research published on Wednesday (Oct 17). The projected 4 per cent increase in real private consumption would be an increase from the 3 per cent for this year, and is likely to outstrip Fitch's forecast of 2.9 per cent real gross domestic product growth for 2019, down from an estimated 3.3 per cent this year, as the economy endures prolonged trade conflict between the US and China, rising interest rates, and existing curbs on the housing market.
Fitch also found that unemployment will remain low next year, at 2.2 per cent, flat compared to this year, and while real wage growth has been slow to pick up, it expects wages to rise as the Government continues to restructure the workforce by reducing the flow of foreign labour which will force employers to increase wages to maintain productivity.
Another boon to wage growth is that overall unemployment has remained lower than job vacancy rates, which suggests a tight labour market, said Fitch.
On a gloomier note, Fitch also said consumer sentiment could be impacted by inflation, which is tipped to pick up next year by 1.5 per cent, up from the 0.5 per cent in 2018. In August, headline inflation rose to 0.7 per cent year on year, while core inflation was higher at 1.9 per cent - a sign that "fundamental inflationary pressures remain higher than the headline figures suggest and reflects the upside price impact from imports such as oil".
With a weaker economic outlook, it expects even more policy tightening in 2019 from the Monetary Authority of Singapore (MAS), which already steepened the slope of the Singdollar nominal effective exchange rate policy band during its biannual monetary policy meeting on Oct 12 on the back of a predicted rise in oil prices and strengthening domestic demand.
Fitch pointed to the weak retail sales growth in Singapore this year as a sign of this trend. For August, retail sales fell by 0.4 per cent year on year, which marks a slight pickup from July's 2.7 per cent drop, but still lower than the growth in August 2017 of 3.7 per cent year on year.
"We do not expect retail sales to improve over the rest of 2018 and into 2019 as the Singapore Government is likely to raise goods and services tax from its current 7 per cent, as income taxes were already targeted and raised slightly in the last FY2017/18 budget," the report said.