Alvin Liew, Economist at UOB Group, comments on the November’s contraction of Retail Sales.

Key Takeaways

“After two months of sequential increases, Singapore’s retail sales contracted by -3.7% m/m in Nov, from an unchanged +0.1% m/m in Oct. That still translated to a 6.2% y/y expansion in Nov (from a downwardly revised 10.3% in Oct), and was the first time the y/y growth fell to single-digit expansion after seven consecutive months of double-digit growth. Excluding motor vehicle sales, the m/m decrease was more pronounced at -4.3%, (from +0.7% in Oct), translating to an 8.7% y/y increase (from 14.2% y/y in Oct).”

“Delving into the details of the latest retail sales growth, eight of the 14 main segments recorded m/m decreases in Nov, up from five in Oct. The main segment that recorded the biggest m/m decrease was computer & telecommunication equipment followed by department stores, others, watches & jewellery and wearing apparel & footwear. We think the m/m declines in many of these (discretionary spending) segments may be due to the start of school holidays and in turn the start of year-end holiday travel for many Singaporean households which reduced their spending domestically in Nov.”

“Outlook – Year-to-date, retail sales grew by 10.8% y/y and we continue to project retail sales to expand by 10% in 2022 (unchanged from the previous report) which implies a more moderate forecast of around 3.1% retail sales growth in Dec 22. Going into 2023, key downside risks to retail sales are the still elevated inflation pressures that may increasingly curb discretionary spending of households, in addition to the 1ppt GST hike from 7% to 8% effective from 1 Jan 2023, while the favourable low base effect is also likely to fade going into the new year. That said, upside growth factors for retail sales could still come from the continued recovery in leisure and business air travel and inbound tourism, which will benefit many in-person services sectors, and the impact of China’s reopening from 8 Jan is likely to be positive for Singapore’s travel- and tourism-related sectors including retail, but the boost by China’s re-opening is highly uncertain as there are various factors that may limit the return of inbound Chinese tourists, especially in the near term. We have conservatively maintained a 2.3% retail sales growth for 2023, but the upside potential to our forecast is mainly China.”

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