Consumer confidence at 12-year low

Soaring oil prices, increasing mortgage costs and fears over job security have driven Irish consumer confidence to its lowest level in 12 years.

The overall IIB/ESRI index of consumer sentiment published today dropped to 48.8 in May, down from 56 in March, its lowest reading since the index began in 1996.

The corresponding figure for May 2007 was 97.7.

Austin Hughes, IIB chief economist said the most worrying aspect of the May results was the "sharp deterioration in consumers' assessment of their personal finances" and noted people were becoming increasingly "panicked" about their household finances.

Concern at a general weakness in the Irish economy has been superseded by a "nasty squeeze" in household spending power as the costs of the "necessities of life, mortgage, fuel and food all rise".

During the period of the survey oil prices increased from $112 to about $125 with the prospect of oil reaching $200-a-barrell in the next year "a serious possibility", the index report said.

In a heavily car-dependent country such as Ireland people were taking seriously the risk that petrol and diesel prices could continue to rise, leading Irish consumers to become more negative about their personal finances last month.

Last month saw a number of mortgage lenders increase interest rates charged to customers to offset the ongoing high wholesale cost money for banks.

This, coupled with the fact that higher inflation across the Eurozone has all but removed any hope for a cut in interest rates by the Central Bank - which meets to discuss this matter on Thursday - "has completed a particularly unpleasant set of circumstances", Mr Hughes said.

He said consumers were facing an increasingly gloomy outlook for the Irish economy due to weakness in construction and a further fall in tax revenues.

Despite a number of new job announcements during the survey period "these were overwhelmed by a growing sense of pessimism about employment prospects".

He said if the consumer fears identified in the May index persist and "Irish consumers panic, this threatens a further stepdown in spending in the months ahead".

Mr Hughes noted that Irish consumers share their gloomy outlook with many other countries and that France's equivalent index is at its lowest level since 1987 and UK consumer confidence at an 18-year low.

However, fall in Irish consumer confidence "has been more of a rollercoaster than in other countries because the Irish economy has gone from a position of exceptional strength to one of weakness over a very short period and the outlook over the coming months and years is that the economy will be significantly weaker".

The May survey was prepared using slightly different methodology which may have had a minor impact on the precise numerical estimates. However, the IIB and ESRI said this should not have a significant effect on the broad trend.