Consumer sentiment increased for the second straight month in February, but the overall mood remains “very gloomy”.
A marginal rise from 56.6 to 57 points in the latest Consumer Sentiment Index, jointly published by KBC Bank and the ESRI, suggests consumers’ extreme fears from late 2011 have faded, with an easing in job concerns a key driver in the rise in confidence.
However, with household finances — including increases in charges, insurance costs and fuel bills — still a major worry and uncertainty likely to be boosted by debate over the EU fiscal referendum, the authors of the index have remained muted in their outlook, saying sentiment is still “very gloomy”.
“Changes of this magnitude can’t really be regarded as significant. So, it seems fairer to suggest the recovery in consumer confidence in January, that followed the marked weakening in December, was sustained last month,” said Austin Hughes, chief economist at KBC Bank.
“Given the level of concern about the economic outlook, it might take only a relatively modest improvement in economic prospects to bring about a marked improvement in sentiment and, by extension, some improvement in household spending.
“However, an alternative view is that current fears are embedded to the extent that sentiment will only improve long after a reasonably solid recovery has begun.”
He also pointed out that the scale of concerns facing consumers “cautions against expectations of an early turnaround in confidence or spending”.
On the issue of the EU referendum, Mr Hughes noted: “There is a significant risk that the upcoming debate on the fiscal treaty generates far more heat than light. In such circumstances, consumer confidence and discretionary spending could come under renewed downward pressure.”
The index also shows that sentiment towards the economy is still negative — with 58% of consumers anticipating a worsening in economic conditions, against just 16% expecting some improvement.
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