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Referendum uncertainty leads to dip in consumer sentiment

But people’s expectations about jobs and household finances have improved slightly.

Image: Photocall Ireland!

DURING A MONTH lacking any ‘feel good’ factor and dominated by referendum campaigns, consumer sentiment dipped for the first time this year in May as uncertainty among consumers increased slightly.

The KBC Bank Ireland/ESRI Consumer Sentiment Index fell to 61, down 1.5 points from April’s figure. However, the marginal decline does not signal a change in trend or a reversal of the recent, modest improvements, according to the researchers who say that a straight line sentiment cannot be expected when the Irish economy remains “fragile”.

The 1.5 point drop in the Index between April and May has to be seen in the context of the 3.3 point average monthly gain seen thus far in 2012. So, last months decline was relatively modest. It should also be noted that the underlying trend in consumer sentiment, as measured by the three month moving average of the series, increased slightly in May to 61.4 from 60.1.

Chief economist at KCB Bank Ireland Austin Hughes noted that the Irish economy continues to lack “any clear positive driver that would produce broadly based forward momentum” so a straight-line increase in the sentiment increase would not be possible.

“The May reading seems to be an almost inevitable correction following improvements in sentiment in each of the previous four months,” he added. “[It] likely reflects renewed concerns about the Euro area as well as increased uncertainty ahead of the recent referendum on the fiscal treaty.”

Domestic influences

Similar indexes compiled in other jurisdictions have generally risen in the past month, showing that Ireland’s decline comes from domestic influences and not global ones. According to Hughes, readings in the US and Europe reported an increase in consumer sentiment.

In Ireland, the sharpest drop in the sentiment survey was seen in relation to the general economic outlook. Hughes said this “probably owed something to increased nervousness about the possible consequences of a deteriorating situation in the euro area”.

With regard to last month’s referendum on the Fiscal Compact, Hughes said, “Many consumers the subject matter of the referendum may have seemed extremely complex, somewhat obscure and largely technical in nature. That, in itself, could have increased uncertainty.”

A further and possibly more important influence was the tone of much of the debate ahead of the vote which appeared to centre on the risks associated with one or other outcome. In circumstances where many consumers might have felt that they were damned if they did and damned if they didn’t, it is not entirely surprising that this translated into a somewhat more negative view of the outlook for the Irish economy.

Finances and jobs

The expectations of Irish people in terms of their own jobs and household finances showed month-on-month improvements in May.

Those surveyed held a less-negative outlook for jobs than in previous months with the number of consumers expecting a further rise in unemployment in the next 12 months dropping to below 50 per cent for the first time in five-and-a-half years.

There were also marginal improvements in consumers’ assessment of the outlook for their household finances in the next 12 months but it was “too small to be significant”.

It remains the case that roughly one in three consumers expect their spending power to weaken in the year ahead compared to just one in ten that expect an improvement. So, pressure on household finances is expected to persist. Reflecting this, consumers also marked down their assessment of the buying climate although this may partly reflect a need to pare back outlays ahead of holiday related spending commitments.

A sporting outlook

Looking ahead to the June index, Hughes noted that Irish consumers could be “swept away by sporting euphoria or gloom” after Euro 2012.

However, providing that this does not happen, the June survey results are likely to “confirm a picture of a consumer who has become slightly less fearful of late but still faces substantial financial pressures”.

Whatever happens, he said, Irish consumers will remain cautious.

Last month: Latest consumer survey suggests fears over economy easing>

Related: Irish pharmacists call for a cut in rates to boost retail sector>

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