Dublin Consumer Sentiment recovered solidly in the final quarter reversing a good deal of the weakening reported in the previous three months.

Confidence among consumers in the rest of Ireland also increased in the final three months of 2015, continuing its steady improvement evident through recent quarters.

Current readings suggest the broad trend in consumer sentiment is positive both in Dublin and in the rest of Ireland although somewhat uneven readings also suggest a significant element of caution on the part of the average Irish consumer. Encouragingly, views on household finances are becoming more positive.  So, consumers may be sensing a strong domestic economy is beginning to have some positive impact on their personal circumstances.

The 4th quarter readings suggest consumers across the country are only marginally more optimistic about the outlook for the Irish economy. This could owe something to increased uncertainty about the global outlook of late. This would appear consistent with a measure of caution among consumers in terms of their spending plans-particularly in Dublin, an outturn that may also reflect on-going pressures on living costs such as housing that is more pronounced in the capital.

The somewhat stronger improvement in sentiment on the part of Dublin consumers in late 2015 likely reflects a correction after the weakness of the previous quarter. The survey hints at continuing differences in the nature, pace and stage of recovery in the capital and elsewhere. However, a broadly improving trend across the Irish economy and the emerging upswing in domestic spending in particular suggests these differences in consumers’ assessments of their economic circumstances may diminish somewhat in coming quarters.

Key Data

Dublin Consumer Sentiment Recovers In Q4 As Improvement In Confidence Builds Steadily In The Rest Of Ireland

• Sentiment among Dublin consumers recovered in late 2015 but did not fully reverse the weakness of the previous three months. However, the details of the latest reading suggest confidence among Dublin consumers is on a positive if somewhat uneven trajectory.
• Consumers outside the capital reported a more modest but steady improvement in sentiment in the final months of 2015, sustaining the solid trend of recent quarters.
• Encouragingly, the sentiment survey reports more positive readings on personal finances that suggests an improvement in household incomes is now being felt at the aggregate level even if individual circumstance vary widely. Consumers, particularly in Dublin may also be seeing some impact on their earnings from a strengthening jobs market.
• Continuing uncertainty about the health of the global economy means consumers only marginally upgraded their outlook for the Irish economy in late 2015. Concerns in this regard and  continuing pressure on personal finances mean consumers are still cautious in their buying plans. We think this likely points to uneven gains in spending through the Christmas season.

What Does A Strong Irish Economy Mean For The Average Consumer?

• A sense that a strong ‘macro’ recovery was underway has been a key feature of the sentiment survey, for some considerable time, particularly in respect of Dublin consumers.  More recently, as official  statistics suggested an acceleration in the pace of economic growth, the sentiment indices hinted that consumers across the country were not upgrading their views of Irish economic prospects and were instead taking a slightly more cautious view.
• The Q4 results show consumers in the capital and across the rest of the country were marginally more positive about the Irish economic outlook than they were three months earlier. In circumstances where the flow of domestic economic news was very positive, this must be seen as slightly disappointing
• Three possibly complementary reasons might be suggested for this divergence. First, the forward looking nature of the question in the sentiment survey may indicate that consumers expect the pace of growth to ease from its recent exceptional pace. Related to this may be an increased focus on a very uncertain global outlook of late. Another influence might be some disappointment at the relatively limited impact of the upturn thus far on the circumstances of the average consumer. Finally, it may be that consumers, particularly those in Dublin are increasingly conscious of some adverse consequences of stronger activity such as increases in housing costs and traffic congestion.  

Job Sentiment Improves As Labour Market Strengthens

• After a marked weakening in sentiment on jobs in the third quarter survey, Consumers in Dublin were more upbeat on employment in the final months of 2015. As the diagram across shows, the recent improvement doesn’t fully reverse the weakness of the previous three months which we felt might be attributed to a somewhat slower pace of jobs growth in Dublin, and some high profile job losses such as those in Clerys and Boyers in the summer months.
• The fourth quarter reading represents a fairly positive assessment of the jobs market in the capital. Some 56% of Dublin consumers expect unemployment to fall further in the coming year while just 17% see a rise in joblessness. However, recent survey results suggest we are not seeing a straight line improvement in consumers’ views as to how the jobs market in Dublin is developing or how it might affect them personally.
• Elsewhere in Ireland, consumers’ views suggest that we are at a somewhat earlier stage in the jobs cycle and while a clear improvement has taken hold it is less broadly based and less intense than in the capital. In the fourth quarter, 46% of consumers outside Dublin expected unemployment to decline compared to 21% who envisaged a deterioration. So, the survey suggests that a majority of consumers outside the capital do not anticipate a marked improvement in the jobs market in the coming year.

Household Finances On The Mend But Consumers Still Cautious About Spending

• After some weakening in the previous survey, consumers in Dublin were notably more positive in their views as to how their personal finances had developed in the past twelve months. Our sense is that this reflects the influence of lower oil prices and generally subdued inflation as well as greater confidence that the era of painful austerity measures is firmly in the past. The survey period also saw a notable moderation in house price inflation but housing costs continued to rise.
• Views on household finances still vary widely across households-27% of Dublin consumers reported improved personal finances in the past year while 25% reported a weakening. However, these results represent a marked improvement on the experience of the recent years. As recently as the 4th quarter of 2014, only 13% of Dublin consumers reported improving personal finances while 41% reported a deterioration.
• Outside Dublin, it remains the case that more consumers experienced weaker personal finances (29%) than saw an improvement (23%) in the past year. While this highlights on-going pressure on household finances for many families, it represents an even more marked improvement on the experience of recent years than that seen in Dublin,  as the diagram across indicates.   
• One in three Dublin consumers expects an improvement in their household finances in the coming year while one in seven expects a further deterioration. In the rest of Ireland, the proportions are broadly similar, suggesting increasing optimism that recovery is set to translate into healthier personal finances.
• In contrast, spending plans were a little more cautious in late 2015 reflecting pressures on family finances and a tendency to postpone purchases until prices were sharply discounted. Dublin consumers were  a little more negative than their counterparts elsewhere, possibly reflecting particular pressures on certain elements of living costs such as housing in the capital. So, while Irish consumers are feeling more confident, there is little sense of a return to boom type behaviour in these survey results.

Survey Notes

• This note describes a breakdown of Irish consumer sentiment into components focussed on Dublin consumers and their counterparts across the rest of Ireland. Data limitations preclude a more detailed breakdown of regions outside of Dublin at this time. Similarly, to ensure sufficient sample size, this breakdown is only possible on a quarterly basis. The starting point of the survey is 2003.
• The KBC Bank Ireland/ESRI Dublin consumer sentiment index is being released as part of the ‘Dublin Economic Monitor’ by the four Dublin local authorities. The index for the remainder of Ireland is presented for comparative purposes. It is envisaged that a short analysis of the latest trends in consumer sentiment indices for Dublin and the rest of Ireland will be released to coincide with future quarterly releases of the Dublin Economic Monitor.
• The KBC Bank Ireland/ESRI  consumer sentiment indices for Dublin and the rest of Ireland are quarterly series based on phone interviews with representative samples of consumers over the three months of the relevant quarter. As with the corresponding national survey, these regional sentiment indices are derived from responses given to 5 questions about the outlook for the Irish economy, the outlook for unemployment, recent and expected trends in household finances and the buying climate
• The data are obtained from telephone interviews during the first two weeks of each month of the quarter. The data are re-weighted in line with gender, age, economic status, level of educational attainment, region and household size to ensure the data was fully representative of the national population of adults. The sentiment index for Dublin is based on approximately 700 responses per quarter. The sentiment index for the rest of Ireland is based on approximately 1700 responses per quarter.
• The consumer sentiment index is calculated by computing the relative scores (the percentage of respondents giving favourable replies minus the percentage giving unfavourable replies (the balance), plus 100) for each question used in the different indices. Those who reply “Don’t Know”, “Remain the same” are excluded from the index calculations. Each relative score is rounded to the nearest whole number. The sum of the relative scores is then divided by the base period total for each index.

 
 
 
 

This non-exhaustive information is based on short-term forecasts for expected developments in the economy and financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalised investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a judgment as of the date of the report and are subject to change without notice.