Consumer confidence drops by a third as record lows loom closer

CONSUMER confidence fell by a third over the past 12 months despite a rise in January from a four-and-a-half-year low.

The IIB/ESRI Consumer Sentiment Index recorded a reading of 67 last month, down from 93.2 in the same month last year.

The index hit a four-and-a-half year low in December and it could be tested again this month, according to Austin Hughes, chief economist at IIB Bank.

He said it would not be surprising if the consumer sentiment series’ all time low of 60.9 recorded in July 2003 was tested in February in light of a host of gloomy news of late.

“Consumers remain nervous about the general economic outlook. While the improvement in consumer sentiment in January is welcome, it would not be surprising if increased fears about economic activity and job prospects led to renewed weakness in sentiment in coming months.

“Although the January reading is encouraging in that it suggests consumer confidence isn’t collapsing, it’s too early to suggest a turnaround is at hand,” he said.

The monthly index measures how consumers view current economic conditions and prospects over the next 12 months.

The expectations measure of the confidence gauge rose to 50.4 last month from 49.3 in December, while the measure of current conditions increased to 91.7 from 82.5.

Concern is mounting among consumers that the European Central Bank will increase interest rates this year, with the latest decision due tomorrow.

Figures from IIB show 71% of people expect interest rates to rise this year, whereas only 8% expect interest rates to fall.

“It should be noted that Irish consumers remain overwhelmingly gloomy about the interest rate outlook,” said Mr Hughes.

He added that the details of the January survey reveal a further deterioration of sentiment in regard to general economic prospects.

“This likely reflects increasing nervousness about the health of the US economy and a spate of gloomy forecasts for the Irish economy in the coming year.”

In another sign of weakening consumer spending yesterday, Next, Britain’s third-largest clothing retailer, fell as much as 3.8% as Panmure Gordon & Co reduced its recommendation on the stock to “sell” from “buy”.