Households ‘could gain by €700’

Households could be up to €700 better off by the end of the year according to the business body Ibec, which is forecasting that incomes will stabilise this year.

In a new index of consumers, the Irish Consumer Monitor, Ibec said it believes that, after two years of significant decline, incomes will stabilise this year and a further cut in ECB interest rates of 0.5% will leave mortgaged households €700 better off.

Ibec chief economist Fergal O’Brien said that a lot of people will have more money to spend.

“A significant number will see their spending power increase this year, due to falling interest rates, modest pay rises and the absence of significant additional taxation,” said Mr O’Brien.

“The Government’s approach to reviving activity in the domestic economy needs to be tailored to reflect the different types of consumer and their different circumstances.

“New thinking and greater ambition is needed. There are practical steps the Government can take to support activity in the domestic economy, even in the face of constrained public finances.”

It is not all good news, though. Unemployed people will see their discretionary income fall by 3.7%. Unemployment, according to Ibec, is the key issue that needs to be addressed.

The business body believes getting people back to work should be the Government’s priority, and the best way to do this is to improve consumer confidence.

“The main cause of the unemployment crisis is the lack of consumer confidence and weak domestic demand. Getting people back to work is the priority, but to do this we need a return to more normal, sustainable consumer spending levels,” said Mr O’Brien.

“There are some positive signs domestically, but eurozone worries continue to unnerve consumers.”

The Irish Consumer Monitor found that the net savings ratio had increased to 10%. Ibec that believes unlocking this money will be the key to a return to growth for the Irish economy. Ibec said a savings ratio in the region of 5% would be more normal for an economy such as Ireland’s, but a sustained rebound in consumer confidence will be required to achieve this.

It recommended tax incentives to encourage additional home renovation activity and move in work from the informal to the formal economy.