Middle East conflict and rising energy costs cloud retail outlook

Sharp jet fuel increase could reduce tourist retail spending.

Singapore’s retail sector, which showed resilience in January and February, is expected to encounter challenges for the remainder of 2026.

According to UOB, the ongoing US–Israel–Iran conflict could dampen consumer sentiment, whilst businesses may adopt a more cautious hiring stance amidst uncertainty over supply chain disruptions and rising energy prices.

The surge in jet fuel costs, which have climbed above $257 (US$200) per barrel—well beyond the Brent crude price of over $126 (US$100) per barrel—is likely to impact tourist arrivals.

Several airlines have already raised airfares in response, which could in turn affect retail spending by visitors. However, some relief may come from a moderation in outbound travel by residents, potentially boosting domestic consumption.

“That said, the impact on retail sales may be partly mitigated by a moderation in outbound resident air departures, which could result in higher spending by residents domestically,” UOB said.

Retail sales fell 4.1% month-on-month in February on a seasonally adjusted basis, following a 6% gain in January. The decline is thought to reflect front-loaded purchases ahead of the Lunar New Year.

Nine of the 14 retail subcategories saw sequential drops, notably wearing apparel and footwear (-14.4% vs. +7.2% in Jan), mini-marts and convenience stores (-13.8% vs. +6.8%), supermarkets and hypermarkets (-6.0% vs. +7.8%), and department stores (-3.5% vs. +3.7%).

On a year-on-year basis, retail sales for Jan–Feb 2026 rose 3.5%, up from 0.9% in the same period of 2025.

The improvement was underpinned by a strong labor market, including a higher job vacancies-to-seekers ratio in 4Q25 (1.58, up from 1.50 in 3Q25), stable retrenchment numbers (3,690 vs. 3,670), and increased labor market churn, with recruitment rates rising to 2.0% (from 1.8%) and resignation rates edging up to 1.3% (from 1.2%).

February alone saw an 8.3% year-on-year increase, highlighting robust domestic demand.

VT Markets attributed the rebound to resilient domestic demand and a sustained recovery in tourism, with visitor arrivals consistently exceeding one million per month in early 2025. “The sharp turnaround in retail sales underscores stronger-than-expected economic momentum,” said market observers.

"The sharp rebound in Singapore’s retail sales for February 2025, from a contraction to an 8.3% year-on-year expansion, is a powerful signal of renewed consumer strength," the report said.

It noted that the data raises the stakes ahead of this month’s Monetary Authority of Singapore (MAS) policy meeting. Strong domestic spending may contribute to persistent inflation, which has hovered around 3% in recent months, potentially prompting the central bank to consider tightening measures.

However, the VT Markets said that past precedent such as MAS’ decision to hold policy steady in April 2023 despite high inflation suggests a cautious approach remains possible.

The retail sales rebound is also influencing financial markets. Foreign exchange traders are eyeing opportunities in the Singapore dollar, with short-dated call options seen as a strategy to capitalize on potential hawkish signals from MAS whilst limiting risk.

In the interest rate market, expectations of policy tightening are already impacting the yield curve, particularly at the front end. Instruments like short-term interest rate swaps are being considered to position for higher rates if March inflation surprises on the upside.

Equities are poised to benefit as well, especially banking and retail-focused stocks on the Straits Times Index (STI).

Historical patterns from early 2023 indicate the STI can gain over 3% following strong retail sales reports. Investors are exploring call options on the STI or consumer-focused stock baskets to directly capture domestic growth momentum.