As a major financial center in the Asia Pacific region, Singapore has long earned a reputation as one of the most advanced economies in the world. In 2017, Singapore was ranked as the country with the most open economy in the world based on the Economic Freedom Index issued by the Heritage Foundation (source: Heritage Singapore), and also as the country with the second most pro-business regime in the world based on the Doing Business report published by the World Bank (source: World Bank, 2024). However, recent years have seen a strategic shift towards increasing domestic demand as the main driver of Singapore’s economic future.
What is Domestic Demand?
Final Domestic Demand is all household expenditure on things such as food, rent and travel (Personal Consumption Expenditure), all Government Net Expenditure to provide public services and all domestic Fixed Capital Investment for new buildings, machinery and so on (Source: Focus Economics, 2023).
Total Domestic Demand (TDD) is Final Domestic Demand plus the value of changes in physical stock. TDD contains many elements that are used to calculate Gross Domestic Product (GDP) using the Expenditure Method (Source: Central Statistics Office, 2021).
Composition of Singapore’s Domestic Demand
Domestic demand plays a crucial role in driving Singapore’s economic growth and development. It creates demand for goods and services, leading to increased production, employment opportunities, and overall economic prosperity. The Singapore economy recorded an average growth rate of 2.6% in the decade to 2022. In 2022, domestic demand growth was 4.4% (Source: Focus Economics, 2023). Singapore’s domestic demand is like a vibrant marketplace, with different players contributing their share:
Household Consumption
They are the biggest spenders, accounting for around 60% of domestic demand. Their major spending categories include:
- Housing: This is the biggest expense for most households, including rent or mortgage payments, utilities, and maintenance.
- Food: They spend a significant portion of their income on groceries, eating out, and enjoying hawker centers.
- Transportation: Public transportation is widely used, but some households also own cars, contributing to spending on car loans, fuel, and maintenance.
- Other essentials: This includes spending on clothing, healthcare, education, and entertainment.
Government Spending
Government spending acts as a key investor, contributing around 15% of domestic demand.
- Infrastructure
Their spending focuses on areas like infrastructure, that includes building and maintaining roads, bridges, public transport systems, and utilities. - Healthcare
Healthcare which consists of the government invests in hospitals, clinics, and public health initiatives to ensure the well-being of citizens. - Education
Investing in schools, universities, and training programs fosters a skilled workforce and prepares future generations.
Business Investment
Business Investment plays a crucial role in driving growth by investing in new equipment, buildings, and research and development (R&D). Their decisions are influenced by factors like:
- Business environment: This includes factors like government regulations, tax policies, and access to financing, which can affect the cost and ease of doing business.
- Economic outlook: Businesses consider factors like economic growth forecasts, consumer confidence, and global market conditions before making investment decisions.
Factors Influencing Domestic Demand
- Economic Factors
A strong economy with high growth, healthy employment levels, and positive consumer confidence encourages people and businesses to spend more. In contrast, a weak economy with job losses and low confidence can lead to decreased spending. - Demographic Factors
Population size, age structure, and income distribution all play a role in domestic demand. Population growth with a younger age structure and rising incomes will likely lead to increased spending. - Government Policies
The government uses various tools, like fiscal policy (adjusting taxes and government spending) and monetary policy (influencing interest rates), to influence spending behavior.
Case Studies: Examples of Domestic Demand in Action
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Electronics Industry
Manufacturing is the main engine of Singapore’s economy, where electronics occupies a major position. According to Enterprise Singapore, in August 2022, the number of exports increased, although shipments of electronic goods decreased for the first time in two years. Exports of electronic goods fell 4.5% year-on-year, marking the first decline since November 2020, compared with a 10.3% rise in July 2022 (Source: Global Data).
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Tourism industry Growth in 2022
Following the reopening of the city’s borders under the Vaccinated Travel Framework, the Singapore Tourism Board (STB) revealed its international visitor arrivals (IVA) estimates.
With the increasing rate of global travel, Singapore estimates that there will be 4–6 million tourists in 2022. When compared with the same period in 2021, in the first half of 2022 Singapore saw 1.5 million visitor arrivals, an increase of almost 12 times (119,000) (Source: Global Data).
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Singapore e-commerce market in 2025
Singapore continues to develop as a major e-commerce market and is expected to grow at a compound annual growth rate of 16.2% from S$7.8 billion ($5.9 billion) in 2021 to S$14.2 billion ($10.7 billion) in 2025 supported by increased consumer spending, government support and increasing preference for online shopping.
As part of the ‘E-Commerce Booster Package’, the government is offering subsidies to retailers to choose online channels and sell products online through participating e-commerce platforms such as Lazada, Shopee and Zalora. Eligible retailers are offered a subsidy of up to 80%, capped at S$8,000 [$6,052.89], of setup and sales costs (Source: Global Data).
Understanding the composition, influencing factors, and potential future trends of domestic demand is crucial for businesses and policymakers in Singapore. Businesses can leverage this knowledge to tailor their products and services to meet evolving consumer preferences, while policymakers can implement effective strategies to sustain and encourage domestic demand, fostering sustainable economic growth and development.
Implications for Businesses
- Businesses can analyze domestic demand trends to identify growth opportunities and adjust their product offerings and marketing strategies accordingly.
- Understanding factors influencing consumer spending allows businesses to adapt to changing market conditions and consumer preferences.
Implications for Policymakers
- Policymakers can utilize fiscal and monetary tools to influence domestic demand based on economic conditions and long-term development goals.
- Developing policies that address demographic shifts and income inequality can contribute to a more balanced and resilient domestic demand landscape.
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Sources:
- Department of Statistics Singapore
https://www.singstat.gov.sg/ - Global Data “Singapore: Macroeconomic Country Outlook”
https://www.investopedia.com/ - Ministry of Finance Singapore “Budget 2024”
https://www.mof.gov.sg/singaporebudget - EDB Singapore https://www.edb.gov.sg/
- Heritage Singapore http://www.heritage.org/index/country/singapore
- World Bank “Business Ready”
http://www.doingbusiness.org/rankings - Central Statistics Office “Total Domestic Demand and Modified Total Domestic Demand”
https://cso.ie/en/interactivezone/statisticsexplained/nationalaccountsexplained/totaldomesticdemandandmodifiedtotaldomesticdemand/#:~:text=Total%20Domestic%20Demand%20(TDD)%20is,as%20a%20whole%20is%20growing. - Focus Economics “Singapore Demand” https://www.focus-economics.com/country-indicator/singapore/domestic-demand/
