Retail growth to slow to 3% on tourism drag, rising job cuts: banks

June sales rose 4%, but eight of 14 segments posted monthly declines.

Weaker visitor arrivals, rising retrenchments, and higher costs are expected to slow Singapore’s retail sales growth to 3% this year, from the 4% expansion recorded in the first half, RHB said.

“We expect retail momentum to moderate over the remainder of the year,” RHB group chief economist Barnabas Gan, one of the report’s authors, said.

The forecast comes as retail sales rose 4% year on year (YoY) in June, accelerating from a downwardly revised 2.9% increase in May.

However, RHB said eight of the sector’s 14 retail segments recorded month-on-month declines, indicating that underlying momentum was beginning to soften despite annual growth across 10 segments.

Recreational goods sales fell 11.2%, minimarts and convenience stores declined 5.4%, optical goods and books dropped 3.9%, and computer and telecommunications equipment fell 2.7%. 

Geopolitical uncertainty, particularly in the Middle East, is expected to limit discretionary spending and encourage more precautionary behaviour.

Demand for non-essential goods including fashion, luxury items, recreational products, furniture and household equipment is likely to soften, the bank said. “These categories are generally more sensitive to confidence and tourism trends.” 

Visitor arrivals fell 4.9% YoY to 1.18 million in June, according to RHB. A separate UOB report said arrivals contracted 6.6% in the second quarter (Q2) and stood at 81% of 2019 levels, reversing the 2.9% growth recorded in Q1.

Arrivals from China, Indonesia, and Europe also declined, which UOB said likely reflected higher airfares arising from the delayed pass-through of increased jet fuel costs.

The bank said retail activity could also be affected by a softer labour market. Retrenchments rose to 4,500 in Q2 from 3,830 in Q1, even as total employment increased by 10,700.

Employment gains were concentrated in manufacturing and construction, whilst services employment, excluding migrant domestic workers, rose by only 1,100, down from 7,400 in the previous quarter.

“Households are likely to remain cautious in their discretionary spending amidst an uncertain labour market backdrop,” said UOB associate economist Jester Koh. 

RHB expects higher electricity, gas, and transport costs to place further pressure on household budgets in Q3, adding that households could allocate more of their spending to essential expenses.

June’s 1% seasonally adjusted monthly increase in retail sales was led by motor vehicles, supermarkets, and food and alcohol.

Motor vehicle sales rose 5.9% month on month, whilst supermarket and food and alcohol sales increased 3.7% and 2.4%, respectively.

UOB said the latter two segments were likely supported by the disbursement of S$500 Community Development Council vouchers in June. 

Online purchases accounted for 64.9% of computer and telecommunications equipment sales. Across the retail sector, online sales made up 16.4% of the total in June, up from 15.3% in the previous month.