We have updated our Consumer Wallet model, which measures growth in consumer spending power and serves as a proxy for the likely level of retail sales growth this year.
The recovery in wage income is stronger than we initially expected (+7.9% y-y compared to +4.0% y-y previously forecast), although this is partly offset by higher debt repayments caused by higher interest rates. Based on the latest estimates, the spending power of the consumer in 2023 may be stronger than our initial base case (which forecast a 1.4% contraction), with a 5.1% y-y increase in funds available for retail and discretionary spending now likely.
The latest forecast is in line with the bullish case we presented in January, which projected a 7.2% y-y increase in the wage bill and resulted in funds available for retail and discretionary spending rising by 4.0% y-y.