Retail growth to cool as haze and costs hit shoppers

September sales missed forecasts, with six of 14 categories growing.

Retail-sales growth is expected to moderate as weaker consumer sentiment, rising living costs and softer tourism demand weigh on discretionary spending, according to market analysts.

Retail sales increased 1.7% YoY in September, improving from the 0.8% growth recorded in August. However, sales declined 1% on a seasonally adjusted monthly basis.

Excluding motor vehicles, sales rose 2.5% from a year earlier but fell 1.8% from August.

RHB Group Chief Economist and Head of Market Research Barnabas Gan and Associate Research Analyst Laalitha Raveenthar said the September result fell below Bloomberg’s 2.2% forecast and the bank’s 2.8% estimate.

Only six of the 14 retail categories recorded year-on-year growth, whilst nine posted month-on-month declines, indicating that spending weakness was relatively broad-based.

RHB maintained its forecast of 3% retail-sales growth for 2026, following a 3.1% expansion during the first nine months. It expects growth to moderate to approximately 2.6% in 2027.

The bank identified heightened geopolitical uncertainty, weaker regional tourism, softer labour demand and rising costs as the main risks to household expenditure.

It said discretionary categories such as fashion, luxury goods, watches and jewellery, recreation and furniture could be particularly exposed to weaker confidence and purchasing power.

Slower wage growth and higher retrenchments in externally oriented sectors could also make households more selective and encourage precautionary saving.

eToro Market Analyst Zavier Wong said the haze was the most likely reason for September’s monthly decline, as poorer air quality discouraged consumers from visiting physical stores.

Mini-marts, recreational-goods retailers, and optical-goods and book stores recorded monthly declines of around 5%.

At the same time, online sales increased to 17.7% of total retail turnover from 15.6% in August, which Wong said was consistent with more consumers staying at home.

The iPhone 18 launch may also have contributed to the shift towards online spending. Computer and telecommunications equipment sales rose 16.5% YoY, supported by demand for mobile phones.

However, Wong said the product-launch boost was unlikely to be repeated in October. He also expects physical stores to remain under pressure from the effects of the haze and high comparison bases from late 2025.

RHB expects essential spending at supermarkets, F&B outlets and provision shops to be comparatively resilient.

Year-end holidays, festive purchases, tourism activity and government support measures could also cushion the slowdown, although the bank said these factors may not fully offset weaker discretionary demand.