Consumer spending to fall by 2%

Consumer spending levels are set to fall by 2% as a whole for 2012 according to latest forecasts.

This is despite recent increases in average disposable income levels and a slight improvement in consumer confidence levels.

The updated outlook comes via the latest edition of the quarterly consumer market monitor, jointly produced by UCD Smurfit Business School and the Marketing Institute of Ireland.

It indicates that consumer spending fell by 2.1% in the first half of this year, with retail sales — which account for half of overall consumer spending — falling by 1.7% in the second quarter alone, following a 0.4% increase in the first quarter.

The Central Bank forecast a 1.6% reduction recently in consumer spend for this year.

Mary Lambkin, professor of marketing at the UCD Smurfit School said: “It’s likely that Irish consumer confidence will remain well below historical averages against the backdrop of a persistently high unemployment rate and international economic instability.”

Much has been made of a perceived improvement in Irish consumer sentiment of late — June’s higher-profile KBC Bank/ESRI monitor detailing a more optimistic outlook, leading to Ireland, apparently, possessing one of the most positive consumer moods internationally — and this latest report adds to that, in part.

It shows a 3.6% rise in the first quarter of the year in disposable income, a rise in personal savings, slight improvements in consumer confidence, and a continuing fall in credit card debt.

But all of this does not mask the deeper problems, according to Ms Lambkin, who said most savings are going to pay off personal debt rather than being put aside for spending reasons.

“Despite the positive signs of an increase in disposable income and an increase in consumer confidence, the only real prospect of stimulating growth in the consumer economy is to get more people back to work,” said Ms Lambkin.

“This would create more disposable income and this, in turn, would lead to increased consumer spending.

“Various forecasts agree that the retrenchment in consumer spending may have run its course by next year, as real disposable incomes begin to stabilise; with a modest level of growth returning from 2014 onwards,” she said.