Consumers ‘less inclined to make major purchases’

Irish consumers are “less inclined to make major purchases” in the coming months as they fret about the recovery of the economy and their financial situation, the latest KBC Ireland/ESRI Consumer Sentiment Index indicates.

The index remained broadly unchanged, dipping from 60.0 in March to 58.9 in April with the three-month moving average falling from 61.2 to 59.4, reflecting a slight weakening of sentiment since the start of the year.

Chief economist of KBC Bank Ireland, Austin Hughes, said the pressures on household finances are likely to limit any improvement in consumer spending.

“After a significant decline in March, consumers’ views as to how their household finances might develop in the year ahead weakened marginally further in April. In spite of an easing in inflation (to an annual rate of just 0.5% in March from 1.1% in February) consumers’ views on the next 12 months seem to have been more heavily influenced by concerns about the impact the new property tax and further budgetary tax and public spending measures may have on household incomes,” he said.

Mr Hughes said that unlike most other areas of the survey, this element has shown a clearly weakening trend through the past six or seven months.

“In the main, this seems to reflect the heightened impact of further budgetary adjustments on already strained household finances. In turn, the very stretched state of consumer finances means that uncertainty in regard to further impositions can have an outsized impact on sentiment and spending power. This would argue that ‘kite flying’ in relation to next October’s budget is limited if further weakness in consumer spending is to be minimised,” he added.

Mr Hughes said the April sentiment reading emphasises the fragile nature of Irish consumer sentiment at present. “This largely reflects two influences. The first is the absence of a clear progressive improvement in Irish economic conditions that would establish beyond doubt that a recovery is taking hold. The second and arguably more important ‘weight’ on sentiment is the poor position of household finances and the prospect that budget pressure on consumer spending power will persist for at least another year or two. Until these circumstances begin to change for the better, a strongly improving trend in consumer spending is unlikely to take hold,” he said.

The KBC economist said details of the April survey suggest consumers became a little more concerned about Irish economic prospects and less inclined to make major purchases.

“The slight deterioration in Irish consumer sentiment in April principally reflected a more downbeat view of the outlook for the Irish economy.

“This element of the survey has shown a modestly improving trend through the past couple of years but the monthly results have been fairly choppy around this trend, suggesting consumers remain fairly uncertain about the extent of progress being made by the Irish economy. In part, this reflects repeated flashpoints in the euro area crisis such as the mishandling of the bailout of Cyprus during the April survey period.

“We think this may have resonated more with Irish consumers than their Greek or Spanish counterparts because it serves to counter more encouraging aspects of the Irish narrative,” he added.


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