Worsening consumer sentiment erases March recovery

Worsening consumer sentiment erases March recovery

Consumer sentiment soured in April, weighed down by an uncertain economic outlook and related worries about household incomes, a new survey shows today.

The KBC Bank/ESRI consumer sentiment index fell to 87.7 in April from 93.1 in March, largely erasing a partial recovery from February’s 51-month low of 86.5.

April’s weakness “reflects the difficulty the typical Irish consumer is having in assessing how various threats may affect the Irish economy and their own household finances in the year ahead”, Austin Hughes, chief economist at KBC Bank Ireland said.

“During the survey period there was a very gloomy IMF forecast for the world economy. Consumers aren’t feeling like they’ve a lot more spending power. During April, for example, oil prices were going up which hits people in their pockets.

But the economist said that an element of caution may not be a bad thing for the economy.

“They are being cautious and that will probably sustain the economy. The caution should be seen as a good thing rather than any panic,” he explained.

Austin Hughes said there appeared at first glance to be a slight mismatch between what consumers are feeling and the statistics around employment growth and consumer spending, but, he said, the figures had to be analysed closely for a more nuanced view.

“The reality is that there are a lot more consumers rather than consumers spending more. The population is growing fast. If you look at household income, the total number rose by 12%, but if you adjust for the number of people, it’s up less than 1%. There are simply more people and while some are doing very well, on average consumers are not doing brilliantly and they’re risk averse,” he explained.

Despite being widely seen as the EU country with the most to lose from Brexit, Ireland weathered initial concerns stemming from Britain’s 2016 referendum vote, which failed to interrupt a run of five years in a row as Europe’s fastest growing economy.

But the Central Bank has said that if Britain crashes out of the EU without a deal it could knock as much as 4 percentage points off the country’s growth rate in the first full post-Brexit year.

The survey’s authors said there was little clarity on Brexit during the survey period, and while the likely postponement of the UK’s exit lessened the near-term risks, the shadow cast by the current uncertainty is a drag on consumer sentiment.

They said that Irish consumers are currently positioned for bad news.

“Only one in five consumers now expects the Irish economy to strengthen in the next 12 months whereas two in five see it becoming weaker,” the added.

One factor that consumers with a mortgage have in their favour is that interest rates don’t look like they’ll be increasing in the near future.

“The Vice President of the ECB said yesterday that the low rate environment is with us for the foreseeable future and he added that when rates rise they won’t go back to the sort of levels they were at,” Austin Hughes said.

“Changes in the world economy mean rates won’t be rising to the sort of levels we saw in the past and that reflects the fact that the economy is not growing as dynamically as it had and that taps into some of the concerns that consumers have,” he added.

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