Consumer sentiment dips slightly as households prepare for tough budget

CONSUMER sentiment fell slightly from a 16-month-high in November as households braced themselves for a tough budget next week, the KBC Bank Ireland/ESRI Consumer Sentiment Index indicates.

Buoyed by positive reaction to the prospect of further European Central Bank (ECB) interest rates cuts following October’s 0.25% cut, the index fell to 60.1 from 63.7 in October.

The index climbed 10.4 points in October but November’s figures, still well above the 55.4 average for the year, were the second-highest reading since the EU/IMF bailout a year ago.

KBC Bank Ireland chief economist Austin Hughes said the increasing view that further ECB rate cuts might follow would be a silver lining for Irish homeowners to what are very dark economic clouds across Europe.

“There is a strong negative correlation between the sentiment index and the direction of ECB interest rates,” he said.

“This reflects the scale of Irish household debt and the importance of changes in debt-servicing costs to many cash strapped Irish borrowers.

“Earlier this year it looked possible that interest rates would be climbing steadily through 2012. It now seems likely that the ECB will play the role of Santa Claus for many hard-pressed Irish households.”

Mr Hughes said it is worth emphasising that any pick-up is still extremely tentative and, at current levels, the Consumer Sentiment Index suggests Irish consumers remain fairly gloomy.

“That said, these data at least hint at a slightly less negative assessment of economic prospects by Irish consumers,” he said.

“In these circumstances, the key near-term task for the Government is to frame a budget package that makes consumers believe further near-term pain will translate into healthier economic conditions in the not too distant future.”

Mr Hughes said there is no suggestion in these data that Irish consumers are unaware of the scale of problems facing the economy or the implications of these for their personal financial well-being.

Meanwhile, the quarterly Consumer Saving Sentiment Research, issued by EBS, shows that 48% of those surveyed plan to only spend what they can afford this Christmas and 37% are dipping into either their regular savings or savings they have put aside specifically for Christmas.

“Only 5% surveyed plan to use credit facilities over the Christmas period. Findings compared with a similar survey conducted at the same time in 2010 shows that respondents expect to spend 5% less this Christmas on family and friends with each person spending an average of €605 versus €637 for last year,” the survey found.