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IBEC expect consumer spend to stabilise

Monday, February 11 10:09:39

Employers group, IBEC, today said consumer spending power is set to stabilise in 2013 despite new taxes such as the property tax coming on stream and improve in 2014.

IBEC said mortgaged working households would see the greatest gain in their spending power this year on foot of low mortgage interest rates, while unemployed households and those in fixed incomes would fare worse.

However, the deal on the promissory notes is better than expected and should provide real momentum to consumer confidence, it said.

IBEC's analysis breaks consumers into four distinct household types: mortgaged working, non-mortgaged working, retired and unemployed.

It said that spending power for Irish households will be almost unchanged in 2013 (+0.2pc) and is forecast to grow by about 0.7pc in 2014. Mortgaged households will see the greatest gain (1.4pc in 2013 and 1.9pc in 2014) as the low mortgage interest costs of 2012 carry over into 2013.

Increased costs, such as health, will hit those on fixed incomes worse than working households.

"Consumer fundamentals (gross incomes, cost of mortgages, private sector employment) are improving. However, we won't see robust growth in spending until both consumer fundamentals and sentiment substantially improve. Impact of the property tax will be an additional cost of E150 on average in 2013, or 0.3pc of after-tax income per household," the report said.

The savings ratio has fluctuated in recent years, peaking at 10pc in 2009, dipping to 5pc in 2011 and rising again in 2012 to over 8pc. A return to a more normal level of 5-6pc would deliver a boost to domestic economy. In recent years living standards of unemployed households have been somewhat protected by low inflation. Average prices fell sharply during 2009-2010, and despite a more recent return to inflation, price levels in the economy remain 2.5pc below summer 2008. However, over the coming years social welfare will remain fixed at best and price increases will continue to reduce spending power, IBEC said.

"The main cause of the unemployment crisis is the lack of consumer confidence and weak domestic demand. Getting people back to work is the priority, but to do this we need a return to more normal, sustainable consumer spending levels. Consumer fundamentals have now stabilised and the promissory note deal could provide real momentum to consumer confidence. The private sector began to add jobs during 2012, a tentative bottoming-out of house prices means that household net wealth is no longer falling and debt levels are starting to ease, albeit from high levels," said IBEC Senior Economist Reetta Suonpera.

"In the absence of further bad news, consumer sentiment should recover during 2013. However, any unforeseen shocks pose a risk to the fragile recovery seen to date. It appears that the worst is now over for the consumer market, but a more substantial improvement in consumer fundamentals and sentiment is required before we see a robust growth in consumer spending."