Consumer sentiment improves to 14-month high as expectations rise ahead of Budget 2024

Consumer confidence rose to a 14-month high this month as concerns about the economic outlook eased, but cost-of-living pressures still curbed spending, the latest Credit Union Consumer Sentiment Index shows.

The continued improvement in the consumer mood may reflect hopes that the Government will introduce further measures offering respite from inflation, economist Austin Hughes said in his analysis of the survey. “Confidence is building slowly but surely, though current sentiment readings still signal fragile financial circumstances are weighing heavily on the mood of many Irish consumers,” he said.

Consumers remain cautious about spending plans, with the majority planning to curtail their outlays in the coming months to either make ends meet, protect against further financial stresses or save for a special purchase.

Only one in five people think the worst of the cost-of-living crisis has passed, with three in five disagreeing with this statement.

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The element of the index that saw the biggest improvement in May related to the general economic outlook. The survey period, May 5th to May 17th, saw a strong upgrade to Irish economic forecasts by the European Commission and the Department of Finance. “It might be inferred that Irish consumers are increasingly aware of much increased domestic ‘fiscal space’ highlighted by media reports referencing expected cumulative fiscal surpluses of €65 billion over the next four years,” Mr Hughes said.

While Irish consumers remain “scarred” by the experience of the financial crisis more than a decade ago, it would be surprising if they concluded that “merely squirrelling away additional surpluses” represented the optimal policy choice at a time of significant and varied economic strains, he said.

With the outlook for household finances showing the second biggest monthly improvement in the month, consumers may now be anticipating that Budget 2024 will introduce additional support measures.

The index, compiled in partnership with Core Research, increased to a reading of 62.4, the May survey showed, up from 59.2 in April and 55.5 in May 2022.

Mr Hughes said a “solidly improving trend” appeared to be well established, but the May 2023 figure still remained some distance below the 86.5 average recorded during the 27 years of the index.

“The clear improvement in Irish consumer sentiment in May stands in contrast to a largely unchanged reading in the euro area and a marked, and largely unexpected, decline in US consumer sentiment,” he said.

The darkening of the mood in the US has been attributed to a sense that its economy is set to weaken later this year, with consumers also likely to have been concerned about a possible debt default by Washington.

“A pickup in UK consumer sentiment in May likely owes something to public holiday celebrations around the coronation but might also reflect slightly less gloomy forecasts for the British economy of late,” Mr Hughes added.

The broader message of the Irish consumer sentiment index is that a positive trend might be expected to continue in the months ahead, but any pickup in spending may be “modest and uneven”.