Household spending in the next few months will likely be influenced by whether the Brexit talks get off to a good or bad start.
A survey by KBC Bank and the Economic and Social Research Institute has reported a slight pick-up in confidence this month, even though “strains” on household budgets were still weighing on sentiment.
The latest reading marks some sort of recovery from February’s sharp decline and suggests that consumers are feeling less “bad” about their financial prospects. Unemployment has fallen over the past year.
However, consumers appear less sure about the economic outlook and are still far from convinced that they can spend freely.
“In the absence of major domestic developments in the next couple of months, we think the major influence on Irish consumer sentiment could be the tone of initial Brexit negotiations, and the extent to which a conciliatory or hostile note eases or amplifies concerns about the consequences for the Irish economy,” said the bank’s chief economist, Austin Hughes.
Any upturn in sentiment “could be reversed by some aggressive posturing in the early weeks of the Brexit negotiations”, he said.
The clock on the two-year negotiating period for the UK and the EU to strike a trade deal started this week, but the Brexit talks will not begin for several more weeks.
Most observers believe that a large swathe of the Irish economy will be damaged by Brexit.
The CSO retail sales figures for February, published earlier this week, suggested underlying retail sales had risen, even though sales of new cars had dropped following the slump in the value of sterling against the euro, analysts said. There was other evidence, however, that economic conditions are getting better.
Meanwhile, figures from Deloitte show a 13% annualised fall in the number of company failures in the first three months of this year.
A total of 219 corporate insolvencies were noted in the first quarter. The bulk of cases remained voluntary liquidiations and there was a decline in the level of court-appointed liquidations. There was also an increase in the number of struggling companies applying for examinership as a more cost-effective way of seeking assistance, with 12 reported, as opposed to two in the final quarter of 2016.
“Companies in the services sector may continue to be most likely to enter an insolvency process in 2017, and we would also expect a slight decline in the number of construction company failures, given the improvements in this sector,” it said.
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