Consumer spending set to grow 5% this year

Irish consumer spending is expected to grow by as much as 5%, in volume terms, this year, despite Brexit effects and monthly retail sales remaining erratic.

Consumer spending set to grow 5% this year

Latest retail sales figures, published yesterday by the CSO, indicate a 2.2% monthly rise in January and a 4.9% rise, when measured on a year-on-year basis.

Spending on electrical and DIY goods at hardware shops and department stores were the big growth areas.

In value terms, January saw a 2.9% monthly increase and a 2.6% annualised rise.

However, the January figures are provisional and follow six months of alternating rises and falls in spending volume levels.

“Retail sales continue to remain erratic on a monthly basis and are still swinging back and forth, but the underlying trend is positive,” Merrion Stockbrokers’ chief economist Alan McQuaid said.

He also noted fluctuations in consumer confidence — going from a 15-year high in January of last year to a two-year low in December and a further rebound in January of this year.

Davy Stockbrokers, however, said yesterday’s data point to household spending making another solid contribution to GDP growth in the first quarter of this year.

However, Mr McQuaid said sterling’s fall after last summer’s Brexit vote did entice some shoppers to the North, but said an improving sterling this year should dim that allure.

“The Brexit fall-out and the uncertain economic implications will likely continue to impact on Irish consumer sentiment, most likely resulting in lower personal spending in the months ahead,” he said, but added that improving employment levels should keep spending levels positive.

“Taking all the factors into account, we are forecasting retail sales volume growth of 4%-5%,” he said.

The Ibec-affiliated Retail Ireland, however, warned that retailers remain under threat from the growing uncertainty amongst consumers and increasing migration of shoppers to foreign-based online retail channels.

Additional good news for the Irish economic outlook came in the form of the latest services sector monitor, from Investec Ireland, showing a continued sharp increase in business activity in February, albeit slightly weaker than January’s seven-month post-Brexit high.

However, it is a different story in Britain, with commentators suggesting the UK may be heading for its weakest growth in a year, possibly heralding the start of a Brexit-induced slowdown. Gauges for manufacturing and the dominant services sector fell in February, with both readings coming in below forecasts.

The loss of momentum in services, the main driver of better-than-expected growth since the Brexit vote in June, is a major challenge.

The UK economy is already forecast to weaken this year as the weaker pound pushes up prices, squeezing consumer incomes.

The services report also showed that sterling’s 18% drop since the referendum is continuing to feed through. The pound hit a seven-week low yesterday on the back of the latest data.

Chris Williamson, chief business economist at Markit, said that UK household budgets may be “starting to crack under the strain of higher prices and weak wage growth.”

Additional reporting Bloomberg

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