Consumer confidence climbs to seven-year high

Fuelled by indications of strong growth and expectations of a less severe budget, consumer confidence hit a seven-year high last month.

The KBC/ESRI Consumer Sentiment Index rose sharply to 89.4 from 81.1 last month, bringing confidence levels to their highest since January 2007.

KBC Bank Ireland chief economist, Austin Hughes said that in light of weakening sentiment elsewhere in Europe, the improvement in confidence here is largely attributable to improvements in the domestic economy.

“In light of relatively weak readings elsewhere, we must look to domestic developments to explain the jump in the Irish Consumer Sentiment Index in July.

“The composition of the survey gains suggest the main driver was likely the sequence of encouraging reports on the Irish economy and developments in the jobs and property markets during the survey period,” said Mr Hughes.

As a result of stronger than expected growth in the first quarter of the year and positive revisions to previous estimates, positive views on the economy rose from 43% of respondents to 54% while negative views dropped from 25% to 13%.

“For the average Irish consumer, the vagaries of the Irish national accounts are rarely a primary concern. However, the clear message that growth is now set on a solid trajectory and this should imply a less severe budget in October clearly struck a chord,” Mr Hughes said.

Discounts on offer during the summer sales period and the improvement in the housing market were also likely to have lessened pressure on some households and contributed towards the more positive economic outlook.

Respondents to the survey were markedly more confident in their thinking on job prospects too but simultaneously remained more sceptical than in relation to the general economic outlook. Three times as many consumers expect a further weakening of their household finances (48%) in the next 12 months as anticipate an improvement (15%), according to the survey.

“We might describe present conditions in terms of a ‘two-story’ Irish economy in which some consumers are experiencing a clear improvement in their living standards which the remainder are hearing about while they struggle to make ends meet,” said Mr Hughes.