Growth of travel, consumer sectors could ease in 2023, as tourists tighten purses and residents take spending abroad: MAS

SINGAPORE — Despite the recent resurgence of the travel- and consumer-facing sectors, Singapore's central bank said Thursday (Oct 27) that the recovery of these sectors could slow next year, with economic uncertainties casting a pall over consumer sentiment.

Any pent-up demand from Singapore consumers will also more likely be tilted towards overseas travel than domestic spending, since outbound figures are still below pre-Covid levels, the Monetary Authority of Singapore (MAS) said in its latest macroeconomic review.

"The lifting of travel restrictions in most markets, strong pent-up demand and expanded household savings have fuelled a resurgence in travel activity since mid-2022," it said in the bi-annual report. 

"Nonetheless, the recovery could be hampered by the weakening global growth outlook, with cost considerations still a major concern."

Singapore looks set to experience a "muddied" growth outlook next year due to economic pressures faced by the country's main trading partners, the report stated.

While the economy here is expected to see growth of 3 to 4 per cent this year, MAS forecasts that this growth will moderate to a "below-trend" pace next year.

It also warned that the risk of the global economy slipping into a deeper and more protracted downturn is "substantial", and that a scenario of persistently high inflation could put the United States and the Eurozone at risk of a recession that could spill over to some Asian economies.

RECOVERY CONTINUES PAST 2022

Despite this, MAS said that it expects a continued recovery in the travel sector, which comprise cross-border air, land and sea transport; as well as the consumer sector that includes the accommodation, food-and-beverage and retail industries. 

In terms of domestic arrivals, Singapore Airlines expects air passenger capacity to recover to around 80 per cent of pre-Covid levels by end of the year, indicating that passenger loads are continuing to pick up. 

Visitor arrivals from Australia, Europe, India and Malaysia have recovered to 55 to 73 per cent of pre-Covid levels, while arrivals from China and Japan "languished" at 5 per cent and 23 per cent respectively, as travel restrictions in these locations remained tight.

For the accommodation sector, growth is expected to stay muted this year before staging "a more discernible" recovery next year.

"The rebound in tourism demand this year is unlikely to offset the fall in government bookings as well as staycation demand, as more residents begin to travel overseas again," MAS said.

Furthermore, the authority noted that the shortage of housekeeping workers due to the labour crunch has forced hotels to lower their occupancy rates, weighing on the ability to meet the uptick in demand in the sector.

For the consumer-facing retail and food-and-beverage sectors, increased visitor arrivals will impart "positive spillovers" in the near term, with some retail players performing better than expected this year, driven by "firm local demand", MAS added.

In addition, the "front-loading" of demand before the Goods and Services Tax (GST) hike in January 2023 could spur spending and bring the retail sector back to pre-Covid levels.

This means that consumers might choose to buy their big-ticket items before the turn of the year, when the GST rate will increase from 7 per cent to 8 per cent.

The GST rate will again be raised from 8 to 9 per cent at the start of 2024. 

The central bank added that the inflow of tourists has also further bolstered sales since April, with key events such as the Formula One Singapore Grand Prix, Tour de France Singapore Criterium, and the Great Singapore Sale in the second half of 2022 helping to boost spending.

SLOWING MOMENTUM

Beyond 2022, MAS also noted there could be some respite for consumers and the air transport industry should inflation as well as oil prices moderate.

However, growth momentum for the consumer and travel sectors could decelerate in 2023, the report said. "Higher inflation alongside the uncertain economic environment could dampen consumer sentiment," MAS predicted. 

Structural factors could also continue to weigh on airlines' profitability.

Despite the pace of recovery in tourist arrivals seen in 2022, business travel may still not recover to pre-Covid levels as meetings shift online and companies commit to reducing business travel carbon emissions given sustainability concerns.

As for spending by residents, MAS said that some retail players have been performing better than expected this year despite increasing resident outbound travel. 

However, any unfulfilled pent-up consumption demand in 2023 is likely to be tilted towards overseas travel rather than domestic spending, it added.