Irish consumer confidence improved slightly in June, suggesting that consumers are nervous but feel more braced for what lies ahead.
The KBC Bank Ireland consumer sentiment index, a monthly survey on consumer confidence, increased by 2.2 points to 57.7 in June following four months of weakening sentiment.
However, the figure is still well below the series average of 86.4.
“It is not entirely obvious why confidence rose this month but one possibility is that Irish consumers have now prepared themselves for substantial challenges in terms of living costs,” said Austin Hughes, chief economist at KBC Ireland.
“At current levels, sentiment is awful rather than apocalyptic, suggesting the Irish consumer is down but not entirely out.”
Another possibility highlighted is that consumers may be responding to indications from Government that supportive measures may be introduced.
The sentiment index has only dropped for more than four months in a row once before - between February and July 2008.
While fears of another recession continue to grow, Hughes says that we may have already entered a ‘consumer spending recession'.
“CSO data suggests that between the final quarter of 2021 and the first quarter of 2022, Irish consumers spent an extra €179m - largely reflecting higher inflation, but over the same period the aggregate incomes of Irish households increased by €1.5bn.
"Overall consumer spending has fallen in each of the past two quarters. As a result, we are now in what might be described as a consumer spending recession.”
Nearly 60% of those who responded to the KBC survey said they had cut back on non-essential spending this year, while only 5% said they do not feel a need to make adjustments.
Nearly half of respondents have switched to cheaper ‘own brand’ products when shopping, while 27% have switched service providers and 20% have switched supermarkets.
Around 1 in 4 said they are doing more work in response to increased inflation and 27% said they will reduce the amount they save.
“A much more difficult adjustment is signalled by the substantial 37% of consumers who say they are adjusting their spend on essentials,” said Hughes.
“This likely includes reductions in travel, turning down or off domestic heating and possibly significant variations in cutbacks to grocery spending.
"This implies that more than one third of Irish consumers are making ‘hard' adjustments to their spending and, as a result, likely to their standard of living.”