Outlook gloomy as retail sales fall

RETAIL sales fell sharply in May and are predicted to fall further as consumers lose confidence.

Irish Life Investment Managers Head of Asset Allocation Eugene Kiernan said the figures highlight the extent of nervousness about the economy among Irish consumers.

"Given that the economic bad news has increased in the weeks since then, the outlook for retail sales for the summer is looking depressing. That's going to feed into poor exchequer returns and lower VAT receipts in particular," he said.

However, Davy Stockbrokers chief economist Robbie Kelleher believes the figures are not as bad if averaged over two months.

"On this basis, the index has been broadly unchanged since the latter months of last year. In the first five months of 2003 the overall index is up 1.1% in volume terms and the index excluding garages is up 2%.

"It looks to be tracking a course that is consistent with our forecast of 1.5% growth in consumer spending for the year as a whole," he said.

Mr Kiernan points out that within the latest sales data, it's worth noting in particular that spending is holding up best on household related items (furniture, lighting, paints, etc) which probably reflects the continued demand for new houses and the associated costs of furnishing these.

"Highly discretionary spending on alcohol for example is down 3% which suggests a tough period for the tourist/entertainment sector," he said.

"Overall, the figures generally are disappointing in the context of what was a better April but not that surprising in the context of consumer confidence numbers that we had seen earlier in the month.

"Irish consumers are growing gloomier about their financial situation over the next 12 months. Whereas in contrast, German consumers, albeit from a much lower level, are actually perking up a bit," said Mr Kiernan.

Retail sales measured by volume dropped 5.2% in May from April as economic growth slowed. Compared with a year earlier, May sales in Irish stores fell 2.2%.

Measured by value, retail sales slid 5.7% from April and rose 0.1% from May 2002.

Using the gross national product measurement, Ireland's economy grew at the slowest pace last year since 1983, while unemployment rose in June to a three and a half year high as companies cut jobs and the Government curbed hiring.

Retail sales for the three months through May, which the CSO says is a more stable indicator of sales, declined 1.4% from the three months through February.