Higher living costs, cautious shoppers cloud retail outlook

Retail growth is expected to moderate in the second half.

Singapore’s retail outlook is facing pressure from higher living costs and cautious consumer spending, with softer labour conditions and economic uncertainty expected to weigh on demand in the months ahead.

Retail sales rose 1.5% year on year in July, slowing from 4% in June, as sales fell across several everyday categories. On a seasonally adjusted month-on-month basis, sales increased 0.9%.

UOB said the weaker performance likely reflected cautious consumer sentiment amidst softer labour market conditions.

Retrenchments rose to 4,500 in the second quarter from 3,830 in the first quarter, whilst a Singapore National Employers Federation survey showed that 54% of employers did not plan to increase headcount in 2027. Some 51% planned to moderate or freeze wages, up from 48% in 2026.

"Weakness in retail sales likely reflects cautious consumer sentiment amidst soft labour market conditions," UOB said.

The bank noted that the weakness came despite a 17.6% month-on-month increase in international visitor arrivals in July and a 10% decline in outbound air departures by Singapore residents. Tourism-sensitive segments including recreational goods, department stores, watches and jewellery, and clothing and footwear received some support.

RHB Banking Group similarly expects retail momentum to moderate through the second half of the year, maintaining its full-year retail sales growth forecast at 3%. Its model points to growth of around 2% year on year in the second half, as higher energy costs, softer regional tourism demand, and a more cautious consumer environment weigh on spending.

"The divergence in retail performance, in our view, reflects evolving consumer behaviour rather than a deterioration in household finances," it said.

The bank said higher electricity and gas tariffs, private transportation costs, and commodity price volatility could erode real disposable income and prompt households to prioritise essential spending over discretionary purchases.

Softer labour demand could add to the pressure, RHB said, noting that firms remain cautious about hiring and wage costs. Greater adoption of artificial intelligence and productivity-enhancing measures could further reduce the need for broad-based hiring and wage increases.

RHB expects retail performance to diverge across categories rather than weaken uniformly. Essential spending should remain relatively resilient, whilst discretionary categories are more exposed to weaker confidence, tourism and income conditions.

The bank also flagged geopolitical uncertainty, particularly in the Middle East, as a risk to consumer and business confidence. A prolonged transboundary haze could further affect tourism-dependent retail by reducing visitor footfall and spending on outdoor leisure.

Together with persistent commodity price volatility, higher living costs could squeeze real disposable income and prompt households to prioritise essential spending over discretionary purchases," said RHB. "This could weigh on retail activity, particularly across fashion, luxury goods, watches & jewellery, and furniture, which are more sensitive to household purchasing power and consumer sentiment."

Josh Gilbert, lead analyst for APAC at eToro, said higher living costs were changing how households allocated their spending. Whilst routine categories weakened, recreational goods and watches and jewellery continued to perform strongly, rising 13.9% and 11.1%, respectively in July.

“It’s a fascinating snapshot of how households are coping with higher living costs,” Gilbert said. “Months of elevated prices at the pump and the checkout have made people more careful with routine spending, but that caution hasn’t dented the appetite for a big-ticket purchase.”

Gilbert said households with greater exposure to equities and gold had benefited from gains in asset prices, while jewellery could also be supported by gold’s appeal as a safe-haven asset. Recreational goods, meanwhile, have benefited as consumers prioritise experiences and hobbies.

He also pointed to continued weakness in department stores, which recorded their sixth decline in seven months, while online sales accounted for 15.4% of total retail sales. Fuel sales also declined in July after rising in June, reflecting easing petrol prices.

"Singaporeans are still spending, they've just decided that if the money's going out the door, it had better be on something memorable," Gilbert said. "Right now, this is a market where retailers serving the masses are struggling, while those attracting the wealthy thrive."