Consumer sentiment hits two-year high as fears ease

Consumer sentiment hit a two-year high in July following more positive economic news in Ireland and as fears of a major escalation of the eurozone debt crisis faded.

The KBC Bank Ireland/ ESRI consumer sentiment Index — which measures consumer confidence — rose to 67.7 from 62.3 in June.

The two economists behind the index welcomed the upswing in consumer confidence but noted that it by no way meant a return to the irrational exuberance that marked the heady Celtic Tiger era.

Eddie Casey of the ESRI said consumer confidence remains below the historical average.

“The latest consumer sentiment index reveals a continuation in the upward trend visible since early 2012, having recorded increases in six of the last seven months,” he said.

“As a result, the index is now at its highest level since Jun 2010, yet it remains well below the historical average of 86.8.”

The return to confidence in Ireland comes on the back of huge falloff in consumer confidence in the last quarter of 2011, when fears about Europe- wide economic meltdown terrified consumers.

Economist with KBC Bank, Austin Hughes, said despite the improvement in the consumer index, he felt the underpinnings of the economy have not improved.

“We don’t think this represents a sea- change in the economic circumstances facing Irish consumers but it helps to underpin the tentative improvement in sentiment that has been evident through the first half of 2012.

“So, we would highlight the July results as building on a modest and gradual improvement in confidence rather than signalling any dramatic change in the mood of Irish consumers,” he said.

Mr Hughes said the increase in sentiment in Ireland was at odds with the rest of Europe where consumer sentiment has not enjoyed the same bounce. He said that some specific moves in Europe and Ireland had resulted in a better outlook here.

“EU summit commitment on Ireland’s banking- related debt, an ECB rate cut, solid exchequer returns and a favourable seventh review from the troika. Significantly, the change in the sentiment index was driven primarily be decline in negative responses rather than a surge in positive responses. So, it points to an easing in fears rather than a surge in optimism,” Mr Hughes said.

Despite having the eurozone’s fourth highest unemployment rate, and with domestic demand stagnant, Ireland is set to be the only country in the eurozone periphery to post growth this year and next, a recent survey by Morgan Stanley showed.