Ireland: Consumer sentiment tumbles into negative territory in September
October 1, 2018
The KBC Bank Ireland/ESRI consumer sentiment index slid sharply in September on mounting fears over Brexit. The index fell from 102.4 in August to a 21-month low of 96.4 in September, tumbling below the 100-point threshold that separates optimism from pessimism for the first time since December 2016. September’s sharp drop marks a departure from the nearly one-year long “see-saw pattern” of stronger consumer confidence in one month followed by weaker confidence among consumers in the next month in a rapidly changing and uncertain economic setting.
September’s sharp drop was largely driven by households’ increasing concerns over their personal finances in the previous 12 months—which tumbled into pessimistic territory—and respondents’ less favorable views on the general economic outlook. Households were also considerably less upbeat about their personal finances in the coming year and current economic conditions, although both remained in optimistic territory. Notable upturns in energy and housing costs, and expectations of limited benefits to households from the upcoming budget were likely behind the downgrade in sentiment. Respondents also had a slightly lower propensity to make major purchases. The outlook for unemployment, on the other hand, was largely unchanged from the previous month.
While there was a marked downturn in overall sentiment, KBC Ireland noted that the reading must be viewed in the context of Brexit, which is bound to drive sharp changes in sentiment:
“For four of the five key elements of the survey, positive responses still outnumbered negative responses in September. So while sentiment has weakened it is by no means sour at present […] We would not want to dismiss the weakening in sentiment in September but we think the scale of movement in the index last month may overstate the change in the current and prospective circumstances of the average Irish consumer.”
Author: Nihad Ahmed, Economist