Consumer sentiment has reached its highest level in 17 years, but this doesn’t signal a return to the economic boom, according to an analysis of the findings of the latest KBC Bank Ireland/ESRI index.
The January reading for Irish consumer sentiment – the strongest since February 2001 – was boosted by the sense that the Irish economy is on a "strong trajectory" and was weathering potential storms, said KBC Bank Ireland chief economist Austin Hughes. The economic uplift is now also being felt more broadly by more consumers, he added, boosting confidence.
“While it does not appear to be delivering dramatic gains in purchasing power, it is helping to ease household financial strains,” he said.
The proportion of consumers expecting their personal finances to worsen in the next 12 months fell to 9 per cent in January, which was the lowest share since February 2001
The index rose to a reading of 110.4 in January, up from 103.2 in December. A third reason for the jump is a seasonal one: consumer sentiment usually rises in January. This element of the increase could be reversed in the next month or two, Mr Hughes said.
Marked improvement
“We would be cautious not to overstate the significance of the 17-year high in the index,” he said. “The results are better seen as signalling a marked improvement in confidence of late rather than indicating that Irish consumers feel their circumstances are now better than at any time in the past 17 years.”
As a result, the survey may point to a likely “healthy increase” in consumer spending in 2018, rather than a return to the boom.
The improvements in Irish households’ circumstances are likely to be “modest”, the index suggests. However, the proportion of consumers expecting their personal finances to worsen in the next 12 months fell to 9 per cent in January, which was the lowest share since February 2001.
Consumers' perceptions of Irish economic prospects showed the largest monthly improvement of all the elements within the survey, with this pick-up reflecting an upswing in domestic economic spending and an easing of concerns that Brexit or changes to US tax policy might trigger an immediate pull-back in activity and employment.
“While such fears have not disappeared, the likely impact is now seen as less threatening in part because of the stronger-than-expected current momentum of the Irish economy,” Mr Hughes said.
Some 56 per cent of Irish consumers see the Irish economy strengthening further in the coming year, while 13 per cent expect some deterioration.
It is fairly common to have strong consumer sentiment for January
Almost half (48 per cent) expect unemployment to decline further in the next 12 months. This was three times as many as those who envisaged a rise in joblessness.
January bounce
Improvements in consumer sentiment last month were not unique to Ireland, with January seeing notable increases in confidence across the euro zone, which posted its best result since August 2000, as well as in the UK, which recorded its largest monthly gain since September 2016.
The tendency for snapshots of sentiment to exhibit a New Year bounce is partly linked to post-Christmas sales in the shops, but also relates to “a significant element of optimism” evident among Irish consumers at the turn of the year, Mr Hughes said.
“It is fairly common to have strong consumer sentiment for January in spite of the frequent assertion – thought to have originated with a travel company press release – that late January is the most depressing time of the year.”
