Household spending growth weakens as consumers focus on essentials

Purchases are concentrated on food and health products.

The real household spending in Singapore is projected to grow by just 1.8% YoY for 2020, from an estimated 3.6% growth in 2019, as consumer behaviour and pandemic measures have led to dramatically shifting purchasing patterns, according to Fitch Solutions.

The report highlighted that consumers have been placing a greater focus on essential spending categories. For consumers in countries where a lockdown has been initiated or is expected to happen, the spending focus has been narrowing further, with a concentration on priority purchases such as food and non-alcoholic drinks, as well as health spending.

With that, food and non-alcoholic drinks spending is tipped to grow 4.5%. Grocery retailers NTUC Fairprice, Giant and Sheng Siong notably saw huge crowds when the alert level went into orange, and queues formed during the initial few days of work stoppages.

Health spending will also rise 5.82%. Although all medical bills are borne completely by the government, over-the-counter medicine as well as supplement sales are tipped to grow, given the increased health awareness of the population during a pandemic.

“We highlight that local and foreign owned pharmacies such as Watsons, Guardian and Unity's retail operations are allowed to continue,” the report stated.

Meanwhile, bars, clubs, restaurants all closed at the end of March. “Even before they closed, many such outlets suffered a decline in sales, not only because consumers avoided going out for drinks, but also because of social distancing measures put in place that required patrons to be separated from each other,” Fitch noted.

Likewise, apparel and footwear sales crashed 41% in February, even before the lockdown, the largest decline out of all categories. As clothing stores will be closed for a month, and as consumers will take some time before they are confident to go shopping, this category is expected to remain as one of the hardest hit throughout the rest of 2020.

For the furniture segment, home spending climbed 5.9%, but stores like IKEA will be closed for the entire month of April. This will mean that consumer spending in this segment is projected to record a slower growth outlook.

In line with the consumer outlook, the country’s real GDP has been projected to contract sharply by 2.8% YoY in 2020, down from the 0.7% YoY growth recorded in 2019.