‘Budget speculation leading to consumer fear’

Consumer sentiment plummeted to 60.2 in September, having hit a five-year high of 70.0 in August, according to the latest KBC Bank/ESRI Consumer Sentiment Index.

Last month’s decline reversed most of the improvement seen through 2012 with the Sentiment Index now back at its weakest level since last February.

In their analysis of the August sentiment survey, KBC and ESRI suggested cuts to public spending and tax increases would test the resilience of the mildly positive sentiment evident for most of 2012.

The report’s authors now note that consumer sentiment has partly been unnerved by recent intense media speculation on a range of potentially very painful budget adjustments together with a couple of other negative economic developments.

The report’s authors state: “The September survey results also suggest the improvement in confidence this year was quite fragile. Although we still feel there has been some underlying improvement in consumer sentiment through the first nine months of 2012, the reality is the conditions the average Irish consumer faces remain very difficult and uncertain.

“For most of the past nine months, the improvement in sentiment reflected a gradually broadening view that the worst might be over. The September survey results suggest consumers are no longer sure that is the case. As a result, the fear factor has returned,” it read.

Responding to the KBC Bank/ESRI index, Retail Excellence Ireland, Ireland’s largest industry trade body, said ongoing budget speculation is to blame for the sharp deterioration in consumer sentiment in September. The index is now at its weakest level since February.

Retail Excellence Ireland chief executive David Fitzsimons said: “The sharp deterioration in consumer sentiment in September is no surprise considering the significant amount of budget speculation leading to consumer fear and reduced spending.

“It is important that government only comment when a decision is made and that commentary is made with clarity and authority. Anything else is unhelpful and damaging to domestic economy activity.”