## 1. Drivers of Private Consumption (Percent of GNDI) ## Source details **Canonical URL:** [1. Drivers of Private Consumption (Percent of GNDI)](https://www.imf.org/-/media/files/publications/cr/2026/english/1sgpea2026002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1sgpea2026002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1sgpea2026002.pdf.json) --- ### A. Introduction - Singapore’s private consumption as a share of gross national disposable income (GNDI) was 38 percent in 2024, down from 46 percent in 1990. - Among a sample of 31 advanced economies, Singapore’s share in 2024 is the lowest and comparable to economies like Ireland and Denmark. - Prior literature identifies high development, rapid aging, and low labor share as contributors to low consumption ratios; this analysis adds time-varying measures for financial center intensity and pension-system effects, and an interaction between financial hub status and small geographic size. ### B. Methodology and Data Caveats - Empirical approach: two-way fixed effects regressions on a panel of 31 advanced economies from 1990 to 2024. - Baseline estimating equation components: - Dependent variable: private consumption as a share of GNDI (c_{i,t}). - Controls: demographics (population growth rate, old-age dependency ratio, aging speed), labor income share, lagged real GDP per capita, cyclical factors (real growth, household credit/GDP, interest rates, terms-of-trade changes, unemployment), government consumption/GDP, pension-system net contributions/GDP, financial center intensity (log of gross external assets and liabilities/GDP), country fixed effects (δ_i), year fixed effects (θ_t). - Key data and measurement caveats: - Denominator uses GNDI rather than household personal disposable income due to broad panel availability. - Income uncertainty and financial center intensity are constructed proxies and may be measured with error. - Pension control captures net contributions for redistributive schemes (defined benefit / pay-as-you-go); set to zero for defined contribution schemes and thus does not capture intensity of defined contribution systems. - Analysis identifies partial correlations, not full general-equilibrium causal effects. ### C. Main Findings (Selected empirical results and magnitudes) - Structural factors explain cross-country variation in consumption ratios more than cyclical factors. - Demographics: - Old-age dependency ratio: a one percentage point (ppt) increase is associated with a 0.41 ppt increase in the consumption ratio (preferred specification, Column 8). - Population growth: a 1 ppt increase is associated with a roughly 0.23 ppt lower consumption ratio (negative and significant in most specifications). - Aging speed: unexpectedly positive sign and not statistically significant across specifications. - Labor income share: - A one ppt increase in the labor compensation share is associated with a 0.44 ppt higher consumption-to-GNDI ratio (significant). - Income/development: - Lagged real GDP per capita (log): a one log unit increase is associated with a 4.4 ppt lower consumption ratio in the preferred specification. - Cyclical and financial factors: - Real GDP growth: a one ppt increase is associated with a 0.15 ppt lower consumption ratio (preferred specification). - Household credit/GDP: a one ppt increase is associated with about a 0.04 ppt higher consumption ratio. - Real short-term deposit rate: a one ppt increase is associated with a 0.17 ppt lower consumption ratio (preferred specification). - Change in terms of trade: improvements lower consumption (negative effect). - Income uncertainty: tends to reduce consumption but effect weakens with more controls. - Pensions: - Defined-benefit / pay-as-you-go net contributions: a one ppt increase is associated with about a 1.1 ppt lower consumption-to-GNDI ratio. - Separate analysis using the 2026 External Balance Assessment pension tool indicates Singapore’s defined contribution pension system can help explain up to 1.6 percent of GDP of its current account surplus. - Financial center intensity: - A one log unit increase in the log financial-center measure is associated with about a 1.9 ppt lower consumption ratio (Table 1 columns; preferred specification). - Interaction with small geographic size: the interaction term is positive and significant and offsets the negative base effect of financial-center intensity: - Financial Center Intensity x Small Geographic Size = 2.978 (significant). - Footnote reports an interaction term of 2.64 which offsets a base term on financial center intensity of -2.36; both are significant at the 5 percent level. - Interpretation: conditional on being a financial hub, geographically smaller countries do not necessarily save more; evidence is mixed depending on small-economy measure (population share, output share). - Other variables: - Unemployment rate and government consumption/GDP are not statistically significant in preferred specifications. ### D. Singapore-specific decomposition and dynamics - Drivers lowering Singapore’s 2024 consumption relative to other advanced economies (preferred specification decomposition): - Most important factors: Singapore’s lower old-age dependency ratio (relative to peer average), low labor share (about 10 ppts below the sample average), higher lagged real GDP per capita (log), financial center status, and lower household credit/GDP. - Financial center intensity for Singapore is lower than the average of other financial centers (see Annex II note in source). - Change 2002 → 2024: - Decline in Singapore’s consumption ratio between 2002 (a peak year) and 2024 driven by higher level of development, falling labor share, and growing prominence as a financial hub, as well as negative year fixed effects (notably around the COVID-19 pandemic). - Singapore’s increased old-age dependency ratio partially offsets these downward forces. ### E. Policy implications and suggested future work - Structural nature of low private consumption: - Singapore’s low private consumption-to-GNDI ratio is primarily structural (demographics, lower labor share, high development, financial center role); cyclical factors are less important. - Implication: medium-term structural policies are relevant to reducing external surpluses over the medium and long term. - Areas for future research: - Microeconomic analysis using household-level data to identify heterogeneity in saving and consumption across demographic groups. - Deeper analysis of the pension system and broader social protection as determinants of saving behavior. - Further study of precautionary motives linked to financial center status and the role of multinational enterprises in shaping external imbalances. ### Annex I. Data Definitions and Sources - Private consumption as a share of gross national disposable income (GNDI) — IMF WEO, CEIC, OECD - World Uncertainty Index (in logs) — World Uncertainty Index - Income uncertainty — Author’s calculations using real GDP per capita data from IMF WEO. Preferred measure is the conditional standard deviation of annual real GDP per capita growth from country-specific GARCH(1,1) models following IMF 2021; if GARCH fails, ARCH(1); if both fail, used 5-year rolling variance - Old-age dependency ratio — UN population data - Population aging speed — UN population data; author’s calculations; difference between the old-age dependency ratio 20 years ahead and its current value - Population growth rate — IMF WEO - Population share (% of world population) — World Bank - Output share (% of world GDP) — World Bank - Labor income share — Penn World Table; share of labor compensation in GDP at current national prices; for 2024, the 2023 estimates are used - Log real GDP per capita — IMF WEO; GDP per capita at constant PPP prices - Growth of real GDP per capita — IMF WEO - Real GDP growth — IMF WEO - Household credit to GDP — BIS; credit to the non-financial sector, Households & NPISHs - Real deposit interest rate — IMF WEO - Annual change in the terms of trade — IMF WEO - Unemployment rate — IMF WEO - General government consumption expenditure as a share of GDP — World Bank - Pension adjustment as a share of GDP for defined benefit systems — OECD; IMF; author’s calculations. Indicator set to zero for countries whose core mandatory pension pillar is funded defined contribution - Financial center intensity (in logs) — External Wealth of Nations Dataset; author’s calculations; gross external assets plus gross liabilities relative to GDP - Small geographic size dummy — Author’s classification using geographic size for smallest three economies in the sample; equals one for Singapore, Hong Kong SAR, and Luxembourg *Prepared by Sandile Hlatshwayo with research support from Aishwary Trivedi; International Monetary Fund, June 29, 2026.* ### 1. Drivers of Private Consumption (Percent of GNDI) ________________________________ 8 ### 1. Drivers of Private Consumption (Percent of GNDI) ________________________________ 8 ### A. Introduction - Singapore’s private consumption as a share of gross national disposable income (GNDI) was 38 percent in 2024, down from 46 percent in 1990. - Among a sample of 31 advanced economies, Singapore’s share in 2024 is the lowest and comparable to economies like Ireland and Denmark. - Prior literature identifies high development, rapid aging, and low labor share as contributors to low consumption ratios; this analysis adds time-varying measures for financial center intensity and pension-system effects, and an interaction between financial hub status and small geographic size. ### B. Methodology and Data Caveats - Empirical approach: two-way fixed effects regressions on a panel of 31 advanced economies from 1990 to 2024. - Baseline estimating equation components (as specified): - Dependent variable: private consumption as a share of GNDI (c_{i,t}). - Controls: demographics (population growth rate, old-age dependency ratio, aging speed), labor income share, lagged real GDP per capita, cyclical factors (real growth, household credit/GDP, interest rates, terms-of-trade changes, unemployment), government consumption/GDP, pension-system net contributions/GDP, financial center intensity (log of gross external assets and liabilities/GDP), country fixed effects (δ_i), year fixed effects (θ_t). - Key data and measurement caveats: - Denominator uses GNDI rather than household personal disposable income due to broad panel availability. - Income uncertainty and financial center intensity are constructed proxies and may be measured with error. - Pension control captures net contributions for redistributive schemes (defined benefit / pay-as-you-go); set to zero for defined contribution schemes and thus does not capture intensity of defined contribution systems. - Analysis identifies partial correlations, not full general-equilibrium causal effects. ### C. Main Findings (Selected empirical results and magnitudes) - Structural factors explain cross-country variation in consumption ratios more than cyclical factors. - Demographics: - Old-age dependency ratio: a one percentage point (ppt) increase is associated with a 0.41 ppt increase in the consumption ratio (preferred specification, Column 8). - Population growth: a 1 ppt increase is associated with a roughly 0.23 ppt lower consumption ratio (negative and significant in most specifications). - Aging speed: unexpectedly positive sign and not statistically significant across specifications. - Labor income share: - A one ppt increase in the labor compensation share is associated with a 0.44 ppt higher consumption-to-GNDI ratio (significant). - Income/development: - Lagged real GDP per capita (log): a one log unit increase is associated with a 4.4 ppt lower consumption ratio in the preferred specification. - Cyclical and financial factors: - Real GDP growth: a one ppt increase is associated with a 0.15 ppt lower consumption ratio (preferred specification). - Household credit/GDP: a one ppt increase is associated with about a 0.04 ppt higher consumption ratio. - Real short-term deposit rate: a one ppt increase is associated with a 0.17 ppt lower consumption ratio (preferred specification). - Change in terms of trade: improvements lower consumption (negative effect). - Income uncertainty: tends to reduce consumption but effect weakens with more controls. - Pensions: - Defined-benefit / pay-as-you-go net contributions: a one ppt increase is associated with about a 1.1 ppt lower consumption-to-GNDI ratio. - Separate analysis using the 2026 External Balance Assessment pension tool indicates Singapore’s defined contribution pension system can help explain up to 1.6 percent of GDP of its current account surplus. - Financial center intensity: - A one log unit increase in the log financial-center measure is associated with about a 1.9 ppt lower consumption ratio (Table 1 columns; preferred specification). - Interaction with small geographic size: the interaction term is positive and significant and offsets the negative base effect of financial-center intensity: - Table 1 reports Financial Center Intensity x Small Geographic Size = 2.978 (significant). - A footnote reports an interaction term of 2.64 which offsets a base term on financial center intensity of -2.36; both are significant at the 5 percent level. - Interpretation: conditional on being a financial hub, geographically smaller countries do not necessarily save more; evidence is mixed depending on small-economy measure (population share, output share). - Other variables: - Unemployment rate and government consumption/GDP are not statistically significant in preferred specifications. ### D. Singapore-specific decomposition and dynamics - Drivers lowering Singapore’s 2024 consumption relative to other advanced economies (preferred specification decomposition): - Most important factors: Singapore’s lower old-age dependency ratio (relative to peer average), low labor share (about 10 ppts below the sample average), higher lagged real GDP per capita (log), financial center status, and lower household credit/GDP. - Financial center intensity for Singapore is lower than the average of other financial centers (see Annex II note in source). - Change 2002 → 2024: - Decline in Singapore’s consumption ratio between 2002 (a peak year) and 2024 driven by higher level of development, falling labor share, and growing prominence as a financial hub, as well as negative year fixed effects (notably around the COVID-19 pandemic). - Singapore’s increased old-age dependency ratio partially offsets these downward forces. ### E. Policy implications and suggested future work - Structural nature of low private consumption: - Singapore’s low private consumption-to-GNDI ratio is primarily structural (demographics, lower labor share, high development, financial center role); cyclical factors are less important. - Implication: medium-term structural policies are relevant to reducing external surpluses over the medium and long term. - Areas for future research: - Microeconomic analysis using household-level data to identify heterogeneity in saving and consumption across demographic groups. - Deeper analysis of the pension system and broader social protection as determinants of saving behavior. - Further study of precautionary motives linked to financial center status and the role of multinational enterprises in shaping external imbalances. *Prepared by Sandile Hlatshwayo with research support from Aishwary Trivedi; International Monetary Fund, June 29, 2026.* ### Annex I. Data Definitions and Sources ### Annex I. Data Definitions and Sources ### Variables and data sources - Private consumption as a share of gross national disposable income (GNDI) — IMF WEO, CEIC, OECD - World Uncertainty Index (in logs) — World Uncertainty Index - Income uncertainty — Author’s calculations using real GDP per capita data from IMF WEO. Preferred measure is the conditional standard deviation of annual real GDP per capita growth from country-specific GARCH(1,1) models following IMF 2021; if GARCH fails, ARCH(1); if both fail, used 5-year rolling variance - Old-age dependency ratio — UN population data - Population aging speed — UN population data; author’s calculations; difference between the old-age dependency ratio 20 years ahead and its current value - Population growth rate — IMF WEO - Population share (% of world population) — World Bank - Output share (% of world GDP) — World Bank - Labor income share — Penn World Table; share of labor compensation in GDP at current national prices; for 2024, the 2023 estimates are used - Log real GDP per capita — IMF WEO; GDP per capita at constant PPP prices - Growth of real GDP per capita — IMF WEO - Real GDP growth — IMF WEO - Household credit to GDP — BIS; credit to the non-financial sector, Households & NPISHs - Real deposit interest rate — IMF WEO - Annual change in the terms of trade — IMF WEO - Unemployment rate — IMF WEO - General government consumption expenditure as a share of GDP — World Bank - Pension adjustment as a share of GDP for defined benefit systems — OECD; IMF; author’s calculations. In line with the 2008 System of National Accounts, the adjustment for the change in pension entitlements is defined as the total value of the actual and imputed social contributions payable into pension schemes, plus the total value of contribution supplements payable out of the property income attributed to pension fund beneficiaries, minus the value of the associated service charges, minus the total value of the pensions paid out as social insurance benefits by pension schemes. The data on the pension adjustments are sourced from the OECD and are divided by nominal GDP. The indicator is set to zero for countries whose core mandatory pension pillar is funded defined contribution - Financial center intensity (in logs) — External Wealth of Nations Dataset; author’s calculations; gross external assets plus gross liabilities relative to GDP - Small geographic size dummy — Author’s classification using geographic size for smallest three economies in the sample; equals one for Singapore, Hong Kong SAR, and Luxembourg ### Annex II note and figure description - Title: Key Drivers of Differences in Private Consumption to GNDI for Singapore and Other Financial Centers, 2023 - Annex II, Figure I. Key Drivers of Differences in Private Consumption to GNDI for Singapore vs. Other Financial Centers, 2023 - Note: Middle bars show coefficients' estimated contribution for various drivers of Singapore's 2023 consumption rate relative to the 2023 average consumption rate of other financial centers. The comparison group of financial center economies includes Hong Kong SAR, Ireland, Luxembourg, the Netherlands, and Switzerland. This figure uses 2023 instead of 2024 to allow for more data coverage of the financial centers across the various indicators. ### References - Agarwal, S., & Qian, W. (2014). Consumption and debt response to unanticipated income shocks: Evidence from a natural experiment in Singapore. American Economic Review, 104(12), 4205-4230. - Autor, D., Dorn, D., Katz, L. F., Patterson, C., & Van Reenen, J. (2020). The fall of the labor share and the rise of superstar firms. The Quarterly Journal of Economics, 135(2), 645-709. - Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593-1636. - Cloyne, J., Ferreira, C., & Surico, P. (2020). Monetary policy when households have debt: new evidence on the transmission mechanism. The Review of Economic Studies, 87(1), 102-129. - De Nardi, M. (2004). Wealth inequality and intergenerational links. The Review of Economic Studies, 71(3), 743-768. - De Nardi, M., French, E., & Jones, J. B. (2010). Why do the elderly save? The role of medical expenses. Journal of Political Economy, 118(1), 39-75. - IMF. (2017). 2015 Refinements to the External Balance Assessment Methodology. Retrieved on March 27, 2026. - Jappelli, T., & Pistaferri, L. (2014). Fiscal policy and MPC heterogeneity. American Economic Journal: Macroeconomics, 6(4), 107-136. - Masson, P. R., Bayoumi, T., & Samiei, H. (1998). International evidence on the determinants of private saving. The World Bank Economic Review, 12(3), 483-501. - Mian, A., Sufi, A., & Verner, E. (2017). Household debt and business cycles worldwide. The Quarterly Journal of Economics, 132(4), 1755-1817. - Qureshi, M. (2016). Singapore’s 2016 Article IV Selected Issues paper. What drives private savings in Singapore. - Yoo, J. (2021). Singapore’s 2021 Article IV Selected Issues paper. Household consumption dynamics around shocks. *Annex I. Data Definitions and Sources — source document provided.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1sgpea2026002.pdf_