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Consumer spending power to stabilise this year, improve in 2014

Working households with mortgages will see the greatest growth in spending power while unemployed households will fare worst.

Image: Photocall Ireland

CONSUMER SPENDING POWER is forecast to stabilise in 2013 and improve in 2014 with the deal on the promissory notes expected to boost confidence.

IBEC’s latest Consumer Monitor predicts a slight (0.2 per cent) increase in spending power this year with a growth of 0.4 per cent next year.

Working households with mortgages will see the greatest increase in their spending power this year as the low mortgage interest costs of 2012 carry over into 2013.

However unemployed households as well as those in fixed incomes will fare worse as increased costs, such as health,  hitting those on fixed incomes worse than working households.

IBEC said that in recent years living standards of unemployed households have been somewhat protected by low inflation. Average prices fell sharply during 2009-2010, and despite a more recent return to inflation, price levels in the economy remain 2.5 per cent below summer 2008. However, over the coming years social welfare will remain fixed at best and price increases will continue to reduce spending power.

The impact of the property tax will also heap an additional cost of €150 on average on consumers in 2013, or 0.3 per cent of after-tax income per household.

The savings ratio has fluctuated in recent years, peaking at 10 per cent in 2009, dipping to 5 per cent in 2011 and rising again in 2012 to over 8 per cent. A return to a more normal level of 5-6 percent would deliver a boost to domestic economy.

Commenting on the figures today, IBEC economist Reetta Suonperä said that getting people back to work must be a priority and the lack of consumer confidence and weak domestic demand are the main causes of the unemployment crisis.

He said that while consumer sentiment is expected to recover this year “any unforeseen shocks pose a risk to the fragile recovery seen to date”.

Read: Businesses and financial institutions hail promissory notes deal>
Read: Less than 10% of retail employers will increase pay in 2013>

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