New car loan rules won’t revive inflation, warns Deutsche Bank

Consumer spending will remain subdued.

Regulators recently eased car loan curbs in a bid to boost spending in Singapore, but analysts at Deutsche Bank reckon that the move will not be enough to rekindle inflation in the city-state. Singapore has been in deflation for eighteen consecutive months, the longest stretch of negative inflation ever recorded in the city-state.

Deutsche Bank noted in a report that private consumption expenditures contracted by 1.4% quarter-on-quarter in Q1, indicating that domestic retail sales could remain challenged in the near term.

“It is evident that residents have cut back their spending on discretionary items—recreation, shopping locally and abroad, housing furnishings & renovations,” the report warned.

“In our view, this deceleration in spending is a reflection of the insecurity among consumers in the midst of a fragile economic environment,” Deutsche Bank added.

Although tight spending could get a reprieve from fiscal support and the recent easing of car loan restrictions, Deutsche Bank warned that the continued increase in retrenchments and uptick in resident unemployment rates, not to mention high household leverage, are likely to keep demand pressures subdued.