Consumer optimism stalls in Ireland amid global uncertainty

Even high-income earners in richer countries are feeling the squeeze as everyday essentials are being cut back, the latest Future Consumer Index by financial services firm EY has found. Photo: Niall Carson/PA Wire

Optimism has stalled for consumers, with geopolitical instability and soaring costs leading to a fresh wave of belt-tightening in Ireland.

Even high-income earners in richer countries are feeling the squeeze as everyday essentials are being cut back, the latest Future Consumer Index by financial services firm EY has found.

Despite restrictions on movement and business due to the pandemic easing in most countries in the past couple of months, fear that new variants could put the skids on post-Covid recovery remains at the back of consumers' minds, the index of 18,000 people showed.

EY Ireland consulting partner, Ivan O'Brien, said: "Despite an economic uplift in many countries since the pandemic, consumers are not optimistic about their future due to inflation, fundamental changes in their work and personal lives, and a growing unease around current global geopolitical issues, a trend we are also seeing here in Ireland.

“With their spending power eroding and uncertainties looming, Irish consumers are having to rethink their spending choices, not only around ‘nice to have’ purchases, but also essential day-to-day goods and services."

More than half of the 18,000 surveyed said that the rising cost of goods and services is impacting their ability to buy, or at least make them think carefully before they hand over their money.

While those on lower incomes and in economically developing and poorer countries are inevitably affected the most, those on middle and high incomes are also feeling the pinch.

The index found that 62% of lower-income earners are feeling the pressure, but that 48% of middle-income earners also had the same worries, and 42% of those on the upper wage scale.

Emerging markets are feeling the squeeze strongly, with 62% citing affordability affecting their choices, compared with 45% of respondents from developed markets, EY said.

Rising inflation, which has seen Irish consumers hit by eye-popping increases in fuel and household items in recent months, is an overriding concern, but worries around Covid-19 have not gone away, the index found.

Driven largely by the inflationary impact on prices and the anticipation of new Covid-19 variants, the survey shows that consumers will continue to rein in their consumption, trade down to cheaper alternatives, and purchase fewer non-essentials. 

"Some key items where respondents are spending less include clothing (38%), beauty and cosmetics (35%) and alcohol (30%). Many are already seeking cheaper alternatives for fresh food (20%) and packaged food (19%)," EY said.

Rather than spend what they have today, many are instead putting money away to avoid potential pitfalls down the line, the index showed.

"Uncertainty around managing rising living costs is driving almost two-thirds (60%) of all respondents to want to save more for the future, with 39% of all respondents having made it a goal already to save rather than spend," EY added.

Mr O'Brien said that it cannot be taken for granted that Irish consumers reverse their lockdown instinct to save rather than spend. 

"The return of inflation is also fuelling confirmation bias, with consumers continuing to engage with cautious pandemic era decision-making processes, leading to fewer non-essential purchases.”