Hopes for Budget boost to incomes supports sentiment.

Uncertain global backdrop means Irish consumers remain cautious.

Consumers less fearful but still careful in their spending plans.

Irish consumer sentiment edged higher in October, reversing the slight weakening seen in September. The current level of the sentiment index suggests there is now a reasonable degree of optimism among Irish consumers but a previously clear upward trend has given way to flatter readings of late, suggesting consumers may be struggling to disentangle the likely importance of contrasting influences on their economic and financial prospects. As a result, confidence has effectively remained unchanged through the past three months.

The KBC Bank Ireland/ESRI Consumer Sentiment Index rose to 101.3 in October from 100.6 in September. This 0.7 point gain followed a 0.5 point drop the previous month. Small changes of this sort are not statistically significant and best regarded as indicative of a broadly stable level of confidence through recent months.

The October survey was completed during the first three weeks of October with only 15% of responses received after Budget 2016 was presented on the 13th. So, these results do not reflect an assessment of the measures presented on Budget day itself. However, they do capture the expectations that developed in relation to Budget 2016 in the run-up to Budget day.

Our sense is that the past few surveys suggest Irish consumers have been trying to weigh up the likely impact of a more uncertain global backdrop of late against the increasing prospect of income boosting measures in the Budget.  Because the precise nature and extent of recent risks to the world economy remain unclear and the specifics of Budget 2016 were not known through most of the survey period, it is not entirely surprising that the Irish consumer sentiment index did not exhibit a clear trend in October.

Both the details of the Irish sentiment survey and a comparison with readings of similar indicators for other countries hint at a little more nervousness about the general economic backdrop of late.  In the US, the most comparable measure, produced by the University of Michigan, improved somewhat in October after declining in each of the three previous months. In the Euro area, confidence weakened for the third month in four while the EU commission measure showed UK consumer confidence falling for a third consecutive month. These results suggest that consumers in many countries have become unsettled of late which in turn hints at a commonly held view that the global economic outlook is again becoming a source of concern.

While the Irish Consumer Sentiment Index edged higher in October, this was driven by improved views of household finances. Thinking on the general economic outlook was unchanged from September while expectations for jobs weakened slightly. This assessment of ‘macro’ conditions likely reflects the difficulties Irish consumers might have in judging the potential importance of a weaker global backdrop against that of notably stronger domestic economic momentum of late. These results may also hint that Irish consumers are not getting carried away and simply extrapolating forward the current upswing in the Irish economy.

In common with their counterparts in other countries, Irish consumers would have heard or read about a range of concerns of late that could weigh on global economic prospects. It seems that the main channel through which those risks might feed through to the Irish economy is the jobs market. There was a marginal downgrading of the outlook for employment in the October survey in spite of a continuing sequence of new job announcements through the survey period.

This particular result may also have been affected by some slowdown in the pace of decline in unemployment in recent months. It remains the case that notably more Irish consumers expect that unemployment will fall during the next twelve months than envisage it rising; 45% against 25% in last month’s survey. However, it may be slightly surprising in the context of a generally encouraging level of sentiment that as many as one in four see unemployment worsening in the coming year.

The slight rise in the sentiment index in October resulted from an improvement in thinking on personal finances. That said, it remains the case that Irish consumers are notably more positive about the general economic environment than their own household finances. While some 60% of respondents think the Irish economy will strengthen in the next twelve months, only 29% see their personal finances improving and just 24% say they have seen an improvement in their own financial situation in the past twelve months.

The gap between ‘macro’ and ‘micro’ sentiment closed marginally in October, presumably because of increased speculation about a ‘giveaway’ budget through much of the survey period. However, a still entrenched level of caution was underlined by a pull-back in the buying climate which registered its weakest reading since December 2014. Our best guess is that the combination of a less positive global backdrop, uncertainty about the precise nature and extent of income boosting measures in Budget 2016, on-going financial pressures and looming Christmas–related spending commitments may all have played some role in tempering any inclination towards a step-up in spending in October.

We think employment growth, intense competition among retailers and an underlying improvement in sentiment should all support decent increases in consumer spending volumes as 2015 draws to a close. However, the details of the October sentiment survey caution against expectations of any sharp acceleration in the pace of growth to year end.




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.