‘Worst may be over’ as confidence rises

CONSUMERS feel the worst of the downturn could be over according to figures that show confidence rose to the highest level in more than a year in June.

The KBC Ireland/ESRI consumer sentiment index increased to 53.4 in June compared with 45.5 in May. The corresponding figure for June 2008 was 42.2.

The figure, however, is still low compared with the index’s historical average of 96.

KBC economist Austin Hughes said the scale of the improvement in consumer sentiment in June was “very surprising” but added that it could be partly reversed in the next month or two.

“That said, it does build on a positive trend in recent months. So, it hints that the worst may be over.

“At current levels, the sentiment index is still saying that Irish consumers are fairly nervous but they seem to have drawn some encouragement from signs of ‘green shoots’ abroad and very faint signs that some domestic indicators may be starting to stabilise.”

Mr Hughes said it is “remarkable” that consumer confidence improved in a period in which the impact of higher levies was felt in pay packets and election results suggested considerable dissatisfaction with the Government.

“The rise in the sentiment index in June hints that Irish consumers may detect some progress as well as a lot of pain at present,” he said.

KBC’s measure of how Irish consumers view current economic conditions fell to 74.6 in June from 77.7 in May, according to the survey. The index of consumer expectations climbed to 39.1 from 23.8, the highest since April 2008.

David Duffy, of the ESRI, said: “The results for June show that consumer sentiment improved as consumers adopted a more positive outlook for the next 12 months.”

Mr Hughes added that while consumers remain worried, they are also seeing tentative signs of a turnaround in the global economy that in time may translate into less troubling conditions in Ireland.

“Irish consumers realise that the current situation, both in terms of the public finances and unemployment, remains very poor but, after the experience of the past eight or nine months, it may be significant that both appear to have stopped getting worse,” he said.

The increase in consumer sentiment in Ireland was in line with other countries, particularly the US where the comparable indicator has risen to its strongest level since February 2008.

Mr Hughes said households had become more optimistic about their purchasing power due to falls in mortgage repayments following interest rate cuts and ongoing price-cutting by retailers.