Consumer sentiment improved marginally in September, recovering about half of the decline seen in August, a new survey shows today.
The KBC Bank Ireland consumer sentiment index increased to 60.7 in September, a 1.8 percentage point gain that followed a 3.7 point drop in August.
The September reading remains well above the low-point of 42.6 reached in April, but is still well below both the February reading of 85.2 or the long term series average of 87.2.
KBC Bank Ireland noted, however, that the survey was completed before the re- introduction of tighter localised health-related restrictions on September 18.
The bank said September’s small gain was “encouraging” but added that the “zig-zag pattern” of recent months hints at a consumer struggling to make sense of the a very unclear environment at present.
“More worryingly, the sentiment index remains at levels that suggest consumers remain worried about both the general economic outlook and their own household finances,” KBC said.
KBC said the main driver of the improvement in consumer sentiment in September was a slight easing in negativity about the overall economic outlook, but it cautioned that the mood remains overwhelmingly gloomy.
Only one in 20 consumers expect the Irish economy to strengthen in the next 12 months and seven in ten said they expect further weakness, it stated.
Concerns about unemployment rose modestly in September, which KBC Bank Ireland’s chief economist Austin Hughes said reflected ongoing concerns about the viability of employment in a number of sectors still operating well below capacity.
Official jobs data for the second quarter also showed that the decline in numbers at work here was among the most severe in Europe, the economist added.
September also saw a slight improvement in expectations for people’s finances, although worries also continued to dominate.
While about two thirds of consumers see no change in their spending power in the year ahead, of the remainder, five times as many expect their finances to worsen as expect an improvement.
“A key question in terms of the scale of any rebound in consumer spending through the second half of 2020 is the extent to which the recent pullback reflected precautionary saving driven by fear or forced savings because of the lockdown,” Austin Hughes said.
Pointing out that lockdown constraints appeared to play a very important role in curbing spending through the second quarter of 2020, Mr Hughes said there is a likelihood of a strong rebound in consumer spending through the second half of the year.
“Although it is still likely to fall well short of the scale needed to fully compensate for the lost spending of the first half of 2020, it could be somewhat stronger than widely feared,” he added.
Austin Hughes said a Budget 2021 package that, in signal as well as substance, points the way to a stronger Irish economy next year could materially improve the path of consumer spending in coming months.
“In contrast, measures that prioritise the public finances above activity and employment may lead to a more permanent step-up in precautionary savings,” he added.
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