Worst has passed, but little hope of sharp rebound in consumer spending

THE worst has passed in terms of the collapse in consumer spending but there is little prospect of a sharp rebound.

The latest KBC Ireland/ ESRI consumer sentiment index weakened to 48.7 in August. This compares with a figure of 49.5 in July and to an all-time low of 39.6 in July last year. However this is significantly lower when compared with the 13-year average of 93.4 for the index.

Analysis of the results found that the modest improvement seen of late implies that consumers are not quite as fearful as they were through the summer of last year or the early part of this year.

KBC economist Austin Hughes said: “It is slightly surprising that we didn’t see a much sharper deterioration in August given significant redundancies, major cutbacks in spending proposed by an Bord Snip and controversy about NAMA. It may be that consumers had already braced themselves for this sort of bad news.

“It could also be that they are keen to see some plan of action even if it isn’t perfect and of course they may be hoping that an improvement in other countries will limit the downside for Ireland.”

Mr Hughes said a surprising aspect of the August results is an improvement in the buying climate.

“This probably reflects a response to heavy discounting in the summer sales, but it may also hint that the freefall in consumer spending could be coming to an end,” he said.

A negative outlook for the labour market meant the forward-looking index declined to 28.6 in August from 30.6 in July.

The index of current economic conditions rose marginally to 78.6 in August from 77.6 in July reflecting consumer’s becoming more positive about the buying climate.

David Duffy of the ESRI said: “Consumers remain concerned about their current and future household financial situation.”

Meanwhile research has also shown that Irish consumers are among the top 10 online shoppers in the world. Director of sales at Google, Ronan Harris said: “Proportionate to our size of population, we buy far more online than our European neighbours: 94% of internet users in Ireland have shopped online, placing Ireland in the top 10 countries in the world for online buyer penetration.

Last year an estimated €2.5 billion was spent in online transactions.