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Front-loaded budget ‘could push economy to breaking point’

The KBC/ESRI Consumer Sentiment Index is virtually unchanged, but shows a worrying emerging trend in the medium term.

Image: Sasko Lazarov/Photocall Ireland

CONSUMER SENTIMENT remained virtually unchanged in August, with shoppers still fearful about their future earnings, according to data published today – which warned the government that another austere budget could mean ‘breaking point’ for the economy.

The KBC Bank/ESRI Consumer Sentiment Index stood at 55.8 for August, effectively unchanged from the 55.9 value measured in July – though the rolling three-month average slipped from 57.2 down to 56.

While values above 50 indicate a generally growing economy, the levels are still a sign of continued unease among the public, who are fearful of spending too much in case their own situations deteriorate.

Austin Hughes of KBC Bank said the drop in buying intentions were a sign of how fragile Irish consumer sentiment was at present, but noted that the index was still well above its all-time low of 39.6 recorded in July 2008.

There was also some cause for optimism, given how the outlook appeared to remain stagnant in the face of deteriorating measures elsewhere in the world.

A similar survey in the US saw a drop of eight points in the last month, while the Eurozone consumer sentiment index recently recorded its largest single-month fall since 1990.

The data also showed that the buying climate had worsened significantly in the last few months, despite a relative increase in the average consumer’s personal circumstances.

Hughes warned that the “short sharp shock” of frontloading budget adjustments may no longer be the most appropriate model for delivering a budget, as fragile sentiment meant that a fifth successive austere budget could push the economy to breaking point.

At that point, he said, additional austerity “weakens, rather than strengthens, the adjustment process” – meaning it may be more sage for the government to under-promise, and then over-deliver, on its targeted cuts for the December budget.

More: European consumers are starting to spend more… except in Ireland and Portugal >

Last month: Summer sales fail to bring out the shoppers >

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Gavan Reilly

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