Chart of the Day: Singapore’s consumer spending to suffer amid surge in debt servicing costs

There is a possible relaxation of macroprudential measures.

Singapore’s household debt has been rapidly rising over the years, resulting in higher debt servicing costs.

According to a report by J.P. Morgan, their forecast of tepid private consumption through 2H15 rests on their assumption that higher rates will bite at consumer spending given a rapid rise in household debt over the past several years.

In this context, they are looking at the possibility of a relaxation of macroprudential measures further on the horizon, particularly in interest-rate sensitive sectors like the property market.

J.P. Morgan says that the increase in leverage in Singapore means that aggregate debt servicing costs could rise significantly even on relatively small moves in domestic rates. 

If SIBOR rises another 50bp by year-end—consistent with two 25bp hikes to the Fed funds rate, or J.P. Morgan’s forecast—aggregate debt servicing costs as a share of GDP could approach their pre-financial crisis peak, even if debt levels remain stable. 

“Though we are less concerned about the immediate impact on financial stability from higher rates in Singapore, we think consumer spending is likely to bear the brunt of higher debt servicing cost,” says J.P. Morgan.