Analysts are expecting to see downsides to Singapore’s retail sales for 2023 after the country’s retail sales index contracted by 0.8% y-o-y in January.
The contraction was a negative surprise as the consensus was expecting a 4.9% y-o-y gain for the month.
On a seasonally adjusted m-o-m basis, Singapore’s total retail sales fell by 9.4% to $4.2 billion.
Excluding motor vehicles, total retail sales grew by 2.1% on a y-o-y basis but fell by 8.2% m-o-m to $3.8 billion.
Within the retail trade sector, food and alcohol led the y-o-y growth at 36.3% followed by “others” with a 9.0% gain. This was offset by the 23.5% y-o-y decline in motor vehicles and 13.5% y-o-y lower sales in furniture & household equipment.
“While the weaker car sales (-19.1% m-o-m, -23.5% y-o-y in Jan, which ‘corresponded with the lower Certificate of Entitlement (COE) quota’) is one of the reasons for the weaker January retail sales outturn, we believe that the other key factor was the January’s one percentage point GST hike to 8% which saw consumers frontloading the spending of big-ticket and discretionary items in December 2022,” says Alvin Liew, senior economist at UOB.
See also: MAS set to hold monetary policy as inflation persists
This includes “furniture & household equipment (-21.2% m-o-m), watches & jewellery (-18.9% m-o-m), cosmetics, toiletries & medical goods (-14.3% m-o-m) and to a lesser extent department store sales (-1.1% m-o-m) and wearing apparel & footwear (-1.9% m-o-m),” Liew adds.
However, there were some exceptions such as recreation goods, which grew by 5.8% m-o-m; optical goods and books, which grew by 0.6% m-o-m; and computer & telecommunication equipment, which increased by 4.8% m-o-m. Liew attributes the growth in these sectors to the start of the new school and work year, which make these items “more inelastic in demand” despite the GST hike.
“Compared to one year ago, only eight of the 14 segments recorded increases in January (compared to 11 in December 2022), and we noted that either the pace of y-o-y increases were lower or the pace of declines were sharper compared to the previous month except for recreational goods (9.7% y-o-y from 7.8% in December), wearing apparel & footwear (23.7% y-o-y from 22.8%), computer & telecommunication equipment (6.3% y-o-y from 3.3%), and optical goods and books (4.8% y-o-y from 3.1%),” writes Liew.
See also: Singapore's headline inflation rebounds to 3.7% y-o-y; core inflation up to 3.3% y-o-y in December
Nicholas Mapa, senior economist at ING concurs, noting that the latest increase in GST and elevated inflation may have slowed sales “substantially”.
"The sustained influx of overseas visitors is likely giving retail sales a boost but this appears to have not been enough to offset the negative impact of surging prices,” he says.
“The big miss on January retail sales highlights some of the challenges to Singapore’s growth outlook this year. Retail sales had been a bright spot of late but it now joins non-oil domestic exports in contraction territory,” he adds.
However, Mapa also notes that China’s reopening could be a “potential positive” for Singapore should the reopening translates to increased trade activity and also bolster tourist arrivals further.
Outlook
RHB Group Research’s senior economist Barnabas Gan expects Singapore’s retail sales momentum to decelerate into the 1H2023 following the “disappointing” start seen in January’s retail sales.
“For the first half of this year, we are cautious about retail demand, especially by departmental stores, and across products such as motor vehicles, household durables and luxury goods such as watches & jewellery. We think domestic demand may be softer this year, although some support may be seen from the recent Budget 2023,” says Gan.
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“Separately, some reprieve may be seen in tourism-related products, especially in discretionary goods in 2H2023, on the back of improving tourism arrivals in the same period,” he adds.
In 2023, the analyst sees domestic-related demand remaining soft for three reasons. First, Gan estimates the slowdown of retail demand as demand fatigue may be seen in response to the front-loading behaviour seen in the 4QFY2022. Next, demand may slow in tandem with the easing GDP growth momentum across Asia and Singapore. Third, the growth in 2023 may have to contend with the high base prints seen in the “robust” retail sales growth in 2022.
On this, Gan expects Singapore’s retail growth in 2023 to come in at 6.0%.
Looking ahead, the analyst is remaining watchful of uncertainties surrounding global geopolitical tensions and pandemic-related risks.
“Any worsening of these risks may re-exacerbate regional economic slowdown and re-introduce travel restrictions,” he says.
“During the pandemic-induced years, Singapore’s retail sales plummeted by 2.8% and 15.3% in 2019 and 2020, respectively,” he adds.
“Barring these risks, we think that tourism-related demand may help buoy Singapore’s retail sales; we expect tourism demand to recover further in 2023, owing to China’s reopening of its borders. China remains a crucial tourism source in Singapore and throughout Asia. As such, the recovering inbound tourism may continue to support Singapore’s hospitality industries, including food & beverages and other discretionary items,” he continues.
In his report, UOB’s Liew says he continues to "expect domestic retailers to enjoy domestic and external support, complemented by the return of major events such as various sports, concerts and BTMICE (business travel and meetings, incentive travel, conventions and exhibitions) activities attracting tourist arrivals, while the tight domestic labour market will likely contribute further to domestic consumption demand".
However, one of the key downside risks to retail sales in 2023 is the still-elevated inflation pressures in addition to the GST hike. “The low base effect is also likely to fade going into the new year, rendering less uplift,” he says.
That said, the continued recovery in leisure, business travel and inbound tourism could be upside growth factors for retail sales.
On the reopening of China's borders, Liew says he expects "[a] significant influx of Chinese tourists and their related spending in the subsequent months".
The economist has kept his 2023 retail sales growth forecast at 5.0% with the upside potential mainly due to China’s lifting of zero-Covid policy.
ING's Mapa has the lowest estimate at 2.4% for 2023 due to slowing retail sales and downbeat exports.
