Consumer spending weakening, says CSO

IRISH consumer spending and sentiment is weakening, according to data from the Central Statistics Office and the IIB Bank/ESRI Consumer Sentiment Index, published yesterday.

Irish retail sales measured by volume rose 0.7% in March from the previous month, the CSO said. Measured by value, retail sales fell 0.1% from February but rose 5.1% from the same month last year. The overall IIB Bank/ESRI Consumer Sentiment Index weakened to 66.5 in May. This compares to a figure of 68.4 in April.

However, despite the spending slowdown and drop in sentiment, the Irish economy will probably expand by 3.2% this year, faster than any other country in the European Union, the Organisation for Economic Co-operation and Development said.

IIB Bank chief economist Austin Hughes said the May decline is mostly a correction following the large increase in April.

“We think the underlying trend is stable or modestly positive. The drop in sentiment in May is not due to a poorer economic outlook. It may reflect the fact that there had been some hopes for an ECB rate cut in May. We reckon interest rates have become a key driver of consumer sentiment and of domestic spending. This may be a critical counterweight to the poorer outlook faced by Irish exporters.

“The trend in consumer sentiment in recent months is consistent with the modest gains seen in March retail sales volumes. Lower inflation and interest rates should sustain modest growth in household spending over the balance of 2003,” he said.

Friends First Group chief economist Jim Power said the consumer dynamics in the economy have deteriorated sharply over the past year and there are no signs of any improvement on the horizon.

“Consumer spending power is being eroded by higher Government charges and indirect taxes, ongoing strong increases in the overall cost of living, lower wage growth in the exposed sectors of the economy, and the negative wealth effect of weak equity markets,” he said.

Mr Power said the Quarterly National Household Survey shows the public sector is the only real source of employment growth in the economy and this cannot continue.

“Hence, the unemployment rate is likely to climb steadily towards 6% over the coming months and the reality of this increased job uncertainty is justifiably forcing consumers to become more cautious in their behaviour,” he said.