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Irish consumer spending forecast to hit €111bn in 2020

Written by Robert McHugh, on 20th Feb 2020. Posted in Ireland

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The latest Consumer Market Monitor (CMM), published yesterday by the Marketing Institute of Ireland and UCD Michael Smurfit Graduate Business School shows that the Irish consumer economy has remained strong over the past three years despite a faltering in confidence due to widespread worries about a negative fallout from Brexit. 

In fact, a review of the last decade paints a very positive picture in which most measures of wealth and well-being are back to where they were at the last peak in 2007, according to Marketing Professor Mary Lambkin of UCD Michael Smurfit Graduate Business School, author of the report. 

The monitor shows the Irish economy is continuing to grow strongly, with consumer spending providing the main stimulus together with property investment. Household spending grew by 3.4% in 2018 and by 3.3% in 2019, to a total of €108 billion, a strong performance that exceeded estimates.

Consumer demand is expected to remain strong this year and next year, driven by continuing growth in employment and incomes, but also helped by the removal of uncertainty in relation to Brexit.

The monitor shows there are now 2.33 million people at work, up 54,000 (2.4%) year-on-year, and up by 500,000 (28%) from the low point in 2012. Employment is expected to continue growing this year but at a moderating rate as the economy approaches full employment. Forecast growth of 1.5% in 2020 and 2021 is expected to add another 70,000 people to the workforce.

The report shows that earnings growth has also played a part in recent years as wages have begun to rise. Wages increased by 2.5% per annum from 2015 to 2017, by 3.5% in 2018 and 2019, and are forecast to rise 4% this year and next, as the labour market tightens.

Furthermore, the combination of more people at work and higher wages has led to substantial increases in the amount of disposable income circulating in the economy. Aggregate disposable income increased by 5% a year from 2015 to 2017 and by 6% in 2018 and 2019, amounting to €117 billion for the year. This momentum is continuing in 2020 although forecasters suggest some moderation as employment growth slows. Growth of even 3% would lead to aggregate disposable income of €120 billion for this year.

Consumer spending has also been boosted by improving household finances, mainly as a result of the increasing value of peoples’ homes. Household wealth stood at €800 billion in September 2019, equivalent to €470,000 per household or €163,000 per person. This is up 80% from the lowest point in 2012. Perceptions of increasing wealth build confidence and encourage consumers to release some of that wealth for spending.

The report suggests that Irish consumers are also beginning to supplement their incomes by taking on some debt, mainly to support the purchase and furnishing of homes. Following a decade of deleveraging with repayments exceeding new borrowing every year, borrowing is beginning to increase again at a modest rate. New lending of €2 billion was advanced to Irish households in 2019, an increase of 2%. €1.2 billion of this was for the purchase of residential property with the balance for other personal consumption.

Credit and borrowing are not major contributors to recent spending, however, unlike in the last boom. The ratio of debt/disposable income of Irish households has continued to fall, down from 215% at the peak in 2012 to 115% in September 2019, a reduction of almost 50%. Also, savings are continuing to increase – bank deposits grew by almost €6 billion (+5.5%) in 2019.

An estimated 57,000 homes were sold in 2019 which was 4% higher than 2018. In contrast, the number of mortgages approved was up 7% in the year indicating that demand is still stronger than supply. 65% of those mortgages went to first time buyers showing that this is still the predominant need.

The authors of the report say a final point to note is the broad-based deterioration in the UK consumer economy on foot of Brexit. There has been a weakening in virtually every metric tracked in this monitor, from property to cars to retail and services from mid-2016 to the end of 2019. Recent data show that this negative trend may be easing, however, with more clarity around Brexit and a slight lift in the value of Sterling. 

Consumer confidence began to recover in 2013 and increased steadily for five years in response to positive economic data. By 2017, confidence among Irish consumers was well ahead of the previous peak in 2007 and was also significantly higher than that of our European neighbours.

Confidence dropped through 2018 reflecting continuing worries about the negative implications of a “hard Brexit”. This downward trend continued through 2019 and, by the end of the year, confidence here was only marginally higher than the UK and the wider EU. According to the report, confidence has picked up in January 2020, however, and the picture looks more promising for the rest of this year.

Source: www.businessworld.ie

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