March heralds big rise in consumer optimism

IRISH CONSUMER sentiment rose sharply in March according to the latest KBC-ESRI consumer sentiment index, though it will not be clear until April data is released if the boost in confidence is a longer-term trend.

The index increased to 59.5 from 50.3 in February – the strongest reading since last August. The steep jump between February and March was the third largest monthly rise in the 15-year history of the survey.

However, the March reading is still consistent with relatively weak outlook for consumer spending, with the 59.5 reading well below the long-term average of 89.3.

The corresponding figure for March 2010 was 61.9, though it remains well above the all time low of 39.6 recorded in July 2008.

The March figures “could hint at least tentatively that consumers may feel the worst could be over for the Irish economy”, the report states.

One contributing factor to the marked pick-up in consumer confidence in March may have been the appointment of the Government, the authors noted.

They said the improvement was surprising given that other countries such as the United States experienced broadly based weakness in the same period. In addition, the rise took place during a period when living costs were rising and the threat of higher interest rates emerged.

“It may be that Irish consumers are looking for a ‘fresh start’ under the new Government and feel that they have already braced themselves for a considerable amount of bad news,” said KBC Ireland’s Austin Hughes. “We should know relatively quickly whether the jump in March is pointing to an improving trend or is just a temporary blip as the April survey period incorporates the ECB rate rise, further upward pressure on oil prices and the latest estimates of the potential costs of Ireland’s banking crisis.”

The Economic and Social Research Institute’s David Duffy emphasised that any recovery in confidence remains tentative.

“The improvement in sentiment is due, in part, to a move from more extreme views to a more central or a neutral outlook by respondents, suggesting that consumers remain cautious in the present circumstances. Over half of consumers still expect higher unemployment over the next 12 months.”