Consumer spending drives economic growth – we can do our part

Singapore is going to slow down in economic growth this year. Economy is forecast to grow between 1% to 2%. If consumers decide to tighten their wallets, this will hurt the economy even further. The Gross Domestic Product (GDP) can be measured by:

Aggregate Expenditure = Consumption + Investments + Government Expenditure + Net Export

Any increase in Private Consumption (consumer spending) helps the economy to grow (assuming the other expenditure components remaining the same). An increase in this expenditure will cause a larger increase in GDP through the multiplier effect. This is good. But during the last three years, Private Consumption as a percentage of GDP had been declining in past three years. (36.8% to 36.6% last year). In 2002, the percentage was 45.6%!

Year Private Consumption as share of GDP (%)
2002 45.6
….  
2007 35.9
2008 38.3
2009 37.9
2010 35.5
2011 36.0
2012 37.0
2013 36.8
2014 36.7
2015 36.6

Source: Singapore DOS, February 2016

Since the unemployment rate is still relatively low, workers with steady wages can spend a bit more this year to help the economy.

When I spend more, the same dollar can be used by business to pay wages and increase business spending. With wages, money gets channeled back to the economy through further consumption by the workers. This is the multiplier effect of consumption.

I am doing my part this year to spend more than last year. As consumers, are we willing to increase the Private Consumption share of the GDP? It will help the economy.

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