Singapore's private consumption to recover in 2H23

RHB expects a 3.8% YoY consumption growth.

Private consumption will recover in the second half of the year on the back of improvement in the GDP momentum, RHB said.

In a report, RHB said three factors will support GDP recovery in the latter part of the year.

First is that services sectors will likely underpin overall GDP growth in 2023.

RHB said the recovery in air travel and international visitor arrivals will uplift the transport and tourism-related sectors such as aviation, retail and F&B. 

“Singapore’s tourism levels have continued to recover year-to-date, and this is expected to continue in 2H23 to support the overall services sector,” RHB said,

The second factor that will contribute to GDP growth is the mix of low-base effects and improving global economic fundamentals which will help exports in the 2H23.

“We expect a sizeable NODX recovery in 2H23, led by rosier global economic fundamentals and a low-base effect from 2H22. Recent high-frequency exports and manufacturing data indicated a recovering momentum trend, which will likely paint a positive backdrop for Singapore’s external-facing industries into 2H23. Overall, we are relatively more optimistic compared to official forecasts. We pencil NODX growth at 1.0% in 2023 against the official estimates of between -2.0% and 0.0%,” RHB said.

Lastly, RHB believes the easing inflation rates year-to-date will help improve GDP growth momentum, given that it provides more certainty in terms of monetary policy and economic prognosis.

“We expect headline and core inflation to average 4.0% in 2023, respectively. This is against an empirical headline and core inflation of 6.1% and 4.1%, respectively, in 2022. Core inflation especially, is expected to slow to near the 2.0% handle in 4Q23, suggesting further dissipation of inflation risks in 2H23,” RHB said.

Given the positive outlook on GDP growth, RHB expects private consumption to grow by 3.8% YoY in 2H23, against a flatline of 0% in 2Q23.

Growth will particularly be seen in discretionary consumer spending which is expected to outperform essentials spending

“We view that an improvement in consumption expenditure in 2H23 will uplift sales in discretionary products, typically in motor vehicles, durables, and luxury goods. However, the spill-over positive impact to essential products may be limited,” RHB said.