Consumer spending facing '12-month road to recovery,' says leading economist

It will be at least 6-12 months before consumer spending levels return to any semblance of normality, according to one economist, with Ireland facing into “a long and far from straight line of recovery”.
Consumer spending facing '12-month road to recovery,' says leading economist
Only one-in-twenty people expect to see an improvement in their financial health in the next 12 months, KBC said.
Only one-in-twenty people expect to see an improvement in their financial health in the next 12 months, KBC said.

It will be at least 6-12 months before consumer spending levels return to any semblance of normality, according to one economist, with Ireland facing into “a long and far from straight line of recovery”.

According to Austin Hughes, chief economist with KBC Bank Ireland, the economy faces at best a vigorous hill-walk and at worst a very difficult climb to recover from current consumer spending levels which were “entirely unimaginable” prior to the pandemic.

He said despite KBC’s latest monthly consumer sentiment index showing further recovery in June, following the worst of the Covid decimation in April, the fact that one-in-three people see their economic wellbeing deteriorating over the next 12 months will weigh on consumer spending.

Only one-in-twenty people expect to see an improvement in their financial health in the next 12 months, KBC said.

Industry group Retail Excellence recently warned of a huge slump in retail sales after an initial post-lockdown/reopening-fuelled surge in spending gives way to consumer “hibernation”.

Mr Hughes echoed this sentiment by warning of a “two steps forward, one step back” consumer recovery trend, saying how long overall recovery takes depends on how long consumers remain in the “one step back” mode.

He said much depends on the employment landscape and broad economic prosperity.

To that end, what sort of economic recovery plan the Government puts forward next month will be crucial, he said.

Mr Hughes said to what extent consumer uncertainty remains when restaurants and pubs gradually reopen from the end of this month will also be telling.

Most economic commentators have forecast heavy falls in consumer spending this year.

The Central Bank sees a 9% fall, the OECD sees Irish spending falling between 12% and 14% and the ESRI has forecast a 20% drop.

KBC’s consumer sentiment index jumped to a reading of 61.6 points in June, up from one of 52.3 in May.

Anything over 50 points suggests growth, but while Mr Hughes said the improvement marks small steps of recovery they are “small steps from a dark place”.

"Consumers remain very concerned about their current personal financial circumstances. As a result, the June outturn remains some significant distance below pre-pandemic readings for Irish consumer sentiment," he said.

“The details of the June sentiment survey suggest some risk that the behaviour of consumers, some cautious and others cash-strapped, may serve to limit the scale and speed of a turnaround in activity and employment.

"Such concerns would support arguments for an early and ambitious fiscal stimulus to both signal and support a recovery that minimises lasting damage from Covid-19 to the Irish economy,” Mr Hughes said.

Overall, KBC said while its June survey suggests confidence is recovering, it also shows consumers remain "worried and wary".

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