Consumer sentiment at strongest level in 13 months

Irish consumer sentiment was at its strongest level in more than a year in April, but remained steady compared to March as encouraging news about the economy was tempered by concerns about the outlook for jobs.

The KBC Bank Irish consumer sentiment index edged up to 77.9 in April from 77.1 in March with this marginal gain effectively signalling no material change in consumer thinking overall during the month.

The April outturn means the sentiment index is now at its strongest level in 13 months. It is also the first time in 33 months that the sentiment reading has been above the corresponding month in the previous year.

However, this result underlines that a downtrend in Irish consumer confidence had been firmly established prior to the pandemic. As a result, the April reading remains well below the 25 year series average of 86.8.

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KBC chief economist Austin Hughes said the stable confidence reading likely reflects an Irish consumer increasingly hopeful of improving news about Covid-19 but also hampered by uncertainty about its longer term economic consequences.

“As in March, consumer sentiment was boosted by solid data and strong domestic and international forecasts for the Irish economy,” he said.

“With encouraging news also emanating from key trading partners such as the US and UK, the broad economic backdrop seems to be developing in a favourable manner.”

The details of the April survey emphasise a still markedly cautious outlook in relation to economic prospects.

Just over a quarter of consumers expect a stronger Irish economy in the next 12 months whereas just under half expect further weakness. That said, the April reading marks the first time negative responses have outnumbered positive ones by less than two to one since June 2019.

“While the outlook for economic activity has improved somewhat of late, concerns about lasting scarring from the pandemic in the shape of permanent job losses have attracted more attention of late,” said Mr Hughes.

“Risks to employment in areas of the Irish economy that have endured extended constraints on activity have become an increasing focus of recent commentary and this may have contributed to a weakening in the jobs element of the April sentiment survey.

“It should be noted that this decline was marginal and a significant improvement in this area of the survey in recent months means that positive responses in relation to job prospects remained only modestly below negative ones in April.

“To the extent that there have been recent developments affecting the incidence of the Covid-19 virus and the roll-out of vaccinations, the results suggest consumers reasonably see the most immediate impact on the general economic environment rather than on the specific circumstances of individual households.

“As a result, the elements of the sentiment survey focussed on consumers’ own personal finances have moved relatively little in recent months.”

The expectation of a post-pandemic economic rebound means that a modestly improving trend in the outlook for household finances was sustained in the April survey but it remains the case that more consumers see their circumstances weakening in the coming year than anticipate gains.

There was an offsetting weakening in consumer thinking on the development of their personal finances through the past twelve months.

“At the margin, this drop may have been influenced by a marked trend increase in energy costs as well as a clear pick-up in consumer prices in a range of areas of late that may also reflect Brexit related impacts,” continued Mr Hughes.

“In these circumstances, it isn’t surprising that there was little change in consumer purchasing intentions, with responses to this question also continuing a modestly improving trend but also continuing to reflect a modestly greater number of negative responses than positive ones.

“Again, we would infer from these results that there is no widespread feverish anticipation by Irish consumers of increased opportunities to spend in coming months. While we see a forceful and front-loaded improvement in consumer spending, its intensity may fall short of some expectations.”