IRISH CONSUMER SENTIMENT fell sharply in September, according to a report released today.
The KBC Bank/ESRI consumer sentiment index fell to 96.4 in September, its lowest level since December 2016. The six-point drop from August’s reading of 102.4 was also the largest monthly decline in four years.
The report attributes the decline in confidence to “concerns about Brexit, sharp increases in energy and housing costs and expectations of very limited gains in the upcoming Budget”.
However, it notes that, for four of the five key elements of the survey, positive responses still outnumbered negative responses in September. The report’s authors also state that the dip in confidence in relation to Brexit “could be at least partly reversed”.
Consumer sentiment in the US this month rose to the second highest reading in 14 years. In marked contrast, confidence measures in the Euro area and UK both tumbled in September.
The report notes that British consumers are “gloomier about their personal finances as well as the broader economic outlook” due to Brexit.
The fall in Irish consumer sentiment in September saw material declines in four of the five main components of the index. The one element to post a monthly gain was expectations for the jobs market, and the improvement compared to August in the employment area of the survey was fractional.
“Our sense is that this owed something to the release of particularly strong official data showing sharp increases in numbers at work in Ireland in spring 2018 from a year earlier as well as a host of new jobs announcements through the survey period,” the authors note.
While Irish consumers were marginally more upbeat about job prospects, they were notably more nervous about the broader economic outlook in September. While the size of the monthly drop broadly mirrored that seen in August, this was sufficient to push this area of the survey to its weakest reading in nearly five years.
The report states that this deterioration is “primarily because fewer consumers expect the Irish economy to perform well through the next year”.
‘Increased nervousness’
In July 52% of consumers expected the economy to strengthen over the next 12 months, while 14% envisaged weaker conditions. In September just 36% anticipated stronger conditions while 21% predicted a weakening.
“Our sense is that this re-assessment of Irish economic prospects is largely prompted by increased nervousness about Brexit,” the authors note.
The September survey period saw the UK government’s ‘Chequers proposals’ for the withdrawal treaty between the UK and EU draw increasingly hostile reactions both from within the Conservative party and elsewhere in the UK political establishment as well as from various EU sources.
“In turn, the growing threat that the UK might ‘crash out’ of the EU without a deal or a transition period prompted a marked increase in consumer concerns about the outlook for the Irish economy through 2019.”
Household finances
The area of the survey showing the largest monthly drop in September related to consumers’ judgements as to how their household finances had developed over the past year.
For the first time since December 2016, a larger share of consumers (23%) felt their financial circumstances had worsened over the previous year, than felt they had improved (21%).
This negative assessment of household finances likely owes something to significant price increases in some important areas of consumer spending.
Official inflation data for August show a 3.1% monthly rise in the cost of light and heating that brought the annual increase to 13%, while a 1% monthly increase in private rents brought the annual rate to 6.2%.
The authors said it’s likely that “comments downplaying the scope for Budget day improvements to tax and social welfare also contributed to a downgrade of household financial circumstances in September”.
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