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Sharp fall in consumer sentiment due to Budget worries

December’s index saw the largest one month point decline in seventeen years.

Image: Andy Delaney/Photocall Ireland

IRISH CONSUMER SENTIMENT fell sharply in December to its lowest level in a year with the KBC Bank Ireland/ESRI Consumer Sentiment Index dropping to 49.8 from 63.8.

This is the largest one month point decline in the seventeen year history of the index bringing sentiment  back to its weakest level in a year.

However KBC chief economist Austin Hughes said that the scale of the decline in the index hugely exaggerates the change in the circumstances of the average Irish consumer of late.

“It likely reflects an outsized reaction to fears about the impact of Budget 2013 on spending power in the coming year as did similar weakness in each of the two previous years,” he said.

Roughly 80 per cent of responses were taken between 3 and 11 of December, with the Budget presented on 6 December with an intense focus on budgetary measures, their fairness and their impacts top of the news agenda.

He said the fragility of the economy and the significant pressure on consumer spending power as well as uncertainty about their future means that domestic economic activity will see only a gradual and modest turnaround in the next year or two.

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The sharpest deterioration in sentiment was seen in relation to consumer assessments of how their household finances would develop in the coming year. The number expecting an improvement shrank from 13 per cent of those surveyed to just 6 per cent while the number that expect their personal finances to worsen surged from 49 percent to 65 percent.

Consumers were also notably more pessimistic about the trend in their financial situation in the past twelve months in spite of a sharp fall in inflation reported during the survey period. However Hughes said the particular weakness of the December survey was largely driven by concerns in relation to household finances rather than more general worries about the ‘macro’ environment.

He added that “it could be argued that this emphasises the importance of ensuring there is good news in relation to [budgetary] measures to ease the burden of Ireland’s banking related debt in coming months.”

Read: Annual savings up 10 per cent on last year>

Read: Retail sales fell 1.1 per cent in November – CSO>

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