End of Iraq war could herald a hike in consumer spending later this year

THE swift end to the Anglo-American war on Iraq has boosted Irish consumer confidence which could herald a hike in consumer spending later in the year.

The overall IIB Bank/ESRI Consumer Sentiment Index rose to 68.4 in April. This compares to a figure of 62.8 in March.

Commenting on the increase IIB Bank chief economist Austin Hughes said: “The April results should encourage the view that sentiment is stabilising at levels that are consistent with modest growth in Irish consumer spending in coming months.”

Mr Hughes said the extent of the rise owes a great deal to relief at the end of the war in Iraq. “However, Irish consumer Sentiment has not been as hard hit by war worries as corresponding confidence measures for most other economies.

“So, this April reading may also hint at an underlying improvement in domestic economic conditions.

“We reckon the pass-through of the March European Central Bank interest rate cut to borrowing costs, coupled with growing hopes for a further reduction and a drop in oil prices have encouraged some improvement in Irish households assessment of the economic outlook.” he added.

In a commentary accompanying the survey the authors say:

“It should also be remembered, that the Irish sentiment index has undergone a substantial, albeit orderly, downward decline through the past three years as consumers pre-emptively adjusted their expectations (and their spending) to the realities of post-boom Ireland.

“So, household finances are in a reasonably solid position for consumers to sustain a modest increase in spending in 2003 and 2004.

“This prospect hinges on the Irish economy avoiding a major negative shock to activity and employment. Clearly, the declining prospect of such an outcome was largely behind the rise in sentiment in April.

“With the risks to the economic outlook from war in the Middle East substantially reduced, the number of negative responses to the survey question about Irish economic prospects in the coming 12 months dropped by nearly nine percentage points while positive responses rose to just under 13%.”