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Prom Deal did little for consumer mood

Tuesday, March 05 12:33:44

The mood of Ireland's consumers darkened during February with only a slight rise in confidence evident from the Promissory Note deal, which was clinched half way through the month.

The overall KBC Ireland/ESRI Consumer Sentiment Index decreased from 64.2 in January to 59.4 in February. The three-month moving average also decreased from 59.3 to 57.8. The index fell below the average for the last 12 months (61.9).

The decrease in sentiment was expected due to the end of the January sales period, according to Kevin Timoney of the ESRI.

"However, all categories of the index fell relative to January, with the largest decline registered for unemployment expectations. Though much improved relative to a year ago, consumers became more pessimistic about their expectations for unemployment in February, following an improvement in January," he said.

"The promissory note deal was announced roughly half way through the survey period. The announcement of the deal would appear to have had some positive impact, with a preliminary analysis of responses showing an improvement in sentiment after the deal. We await the March results to see if the impact on sentiment is sustained."

Austin Hughes of KBC Bank Ireland noted that a disappointing aspect of the sentiment data for February was that the decline was broadly based.

"Consumer spending power remains under pressure and there is little to suggest a dramatic improvement in Irish economic circumstances that would cause a 'feel good' factor to emerge anytime soon. About the best that can be expected is a slow easing in the 'fear factor' that would encourage a gradual increase in spending. This may not be spectacular but it still represents significant progress."

"It is not particularly surprising that the deal on the promissory notes had a positive impact on sentiment or that this impact was relatively modest. The Irish consumer is seeing an improvement in 'macro' conditions across the economy but their personal finances remain under pressure. It may be that some consumers had unrealistic expectations as to what a deal could achieve. More generally, it remains the case that consumers face significant further austerity in the next two Budgets. The deal may ease the pain somewhat but it doesn't entirely remove it. So, we shouldn't expect a surge in confidence. That said, the fragile situation of Irish consumers means they are sensitised to bad news. So, failure to reach a deal could have seen sentiment deteriorate quite sharply," said Mr Hughes.