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From Accountingnet.ie Recession
Irish consumer sentiment weakened somewhat in July as consumers pared back their expectations for economic recovery and became a little more negative about their personal finances. The KBC Bank / ESRI Consumer Sentiment Index declined to 66.2, partly reversing the previous month’s rise that had brought the index to 67.9, its highest level since October 2007. In spite of the disappointing July data, the trend in sentiment still appears to be improving modestly. The three month moving average, the best indicator of the underlying trend, rose marginally to 66.5 from 66.3. On this basis, the index is at its highest reading since the end of 2007 pointing towards a clear if still limited improvement. However, the overwhelmingly cautious mood of Irish consumers at present is seen when the July outturn of 66.2 is compared to the fourteen year average of the consumer sentiment survey of 91.1. Irish consumers were not the only ones to feel gloomier last month. The comparable US sentiment measure tumbled to its lowest level since last November while all the main indicators of UK consumer confidence also recorded their lowest readings for some time. In both instances, concerns about the sustainability of the economic upswing have emerged of late. In contrast, German consumers were notably more upbeat in July as renewed signs of recovery and perhaps a shift in focus away from domestic political concerns to a strong performance by their national team at the world cup improved the mood of consumers in Europe’s largest economy. That said, it is doubtful that football played the decisive role in last month’s sentiment readings as Spanish consumers were slightly more negative in July in spite of that country’s world cup win. The poorer trend in Irish consumer sentiment in July was broadly based with four of the five main elements of the survey declining from their June readings. The sharpest drop was in consumers assessment of their household finances in the past twelve months. A variety of factors may have contributed to this result. One influence may have been a Eurostat report that indicated Ireland had the second highest level of consumer prices in Europe in early 2009. An easing in the pace at which Irish consumer prices are falling and the weaker Euro against the US dollar and sterling in the run up to summer holidays may also have played some role. So, too might some increases in standard variable mortgage costs. So, the July survey suggests Irish consumers face continuing pressures making ends meet each month. But we would be slow to see this as a pointer towards markedly weaker spending. One reason not to over interpret this result is that perhaps surprisingly, consumers assessment of their personal finances for the year ahead was the only aspect of the survey to record an improvement in July. This gain might reflect some recent hints that property taxes are unlikely to be introduced in next December’s budget. It could also be the case that indications that pay cuts have become less widespread of late is providing some support for household budgets. In spite of this, the cautious mood of consumers is also evident in a marginal softening in buying intentions. This may reflect plans to await further reductions in summer sale prices or the constraint on additional purchases imposed by holiday-related spending. We don’t think any definitive judgement is possible on the basis of the July data alone but the household finances elements of the survey need to be monitored carefully in coming months as any prospect of increased consumer spending will require a greater measure of confidence that household finances will improve. The July survey also reported slightly poorer sentiment towards the broad economic outlook and job prospects. The July survey period saw the release of official growth data that pointed towards a statistical turnaround in early 2010 but few signs of a broadly based recovery. Indeed, a clear message from employment and unemployment data also released during the survey period was that a turnaround in the Irish jobs market still remains some distance away. Together with continuing concerns about the costs of bank bailouts, the ‘macro’ developments that occurred during the July survey period are likely to have contributed to a somewhat greater measure of pessimism about the Irish economy among consumers. The weakening in Irish consumer sentiment in July isn’t a major surprise and, unless it persists for a number of months, it may not prove particularly worrisome. It is usual for most economic data series to exhibit some element of volatility around an emerging trend. In addition, Irish consumers are trying to make sense of a range of conflicting influences rather than being driven in a clear direction by one dominant set of factor as was the case in the recent crisis and during the boom that preceded it. For these reasons, we think we will need to see another couple of months data before we can conclude that the circumstances of the average Irish consumer have changed in the manner similar to their US or German counterparts of late. However, one clear message from Irish consumer sentiment data for July is that any emerging recovery in Irish consumer sentiment and spending remains fragile. KBC T: 01 664 6000 e-mail: info@kbc.ie
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