Consumers believe worst is over but doubt economy will recover quickly

CONSUMERS believe the worst is over for the economy but are ruling out any chance of an early return to strong conditions in the next 12 months.

Although there was a fractional decline in Irish consumer sentiment in November, the results are “fairly encouraging”, particularly as consumer confidence weakened in the US, Britain and Germany last month, according to KBC chief economist Austin Hughes.

The KBC/ESRI consumer sentiment index was at 53.6 last month, compared with 54.2 in October.

Although it is significantly higher than the all-time low of 39.6 reached in July last year the index still remains well below its 14-year average of 92.4.

The measure of how consumers view current economic conditions rose to 77.1 in November from 74.7 in October, while the index of consumer expectations fell to 37.7 from 40.4.

Mr Hughes said: “The November results are fairly encouraging. There are clear signs of an easing in the panic that gripped Irish consumers through the past year or two.

“Irish consumers are apprehensive about a future in which job security and the implications of a very large government budget deficit cast a shadow over employment and income prospects.”

David Duffy of the ESRI said consumers remain cautious.

Just one in five expect the economy to improve and three out of four consumers expect unemployment to rise over the next 12 months.

Mr Hughes pointed out that the positive elements of the November survey all related to household finances and spending.

“Clearly, a marked drop in the cost of living and low borrowing costs are easing the pain for many hard pressed consumers. The emerging question is whether the upcoming budget will support or shatter confidence.”

Mr Hughes said that one of the tasks facing Mr Lenihan is to frame a budget that doesn’t lead Irish consumers to embark on a further pull-back in their spending in 2010.

“Recent evidence of improving, if still fragile, sentiment argues the need for December’s package to be a good deal more subtle than the two most recent budgets.

“The slightly improved mood of Irish consumers of late has coincided with tentative signs of a stabilisation in retail sales, albeit at fairly weak levels,” he said.


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