Households upbeat about economy despite uncertainty

Irish households remain upbeat about the economy and employment, despite the uncertainty posed by Brexit in the UK and President Donald Trump in the United States, a new survey shows. The outlook for businesses, however, is a little more uncertain, according to the latest Bank of Ireland economic pulse, which stood at 91.1 in March 2017, down 1.4 points on February and five points lower than this time last year.

While the consumer picture brightened this month, as households upgraded their assessment of the economy and also took a more upbeat view of their personal finances, the unsettled external environment remains a source of concern for many firms.

“The business mood was more muted this month, which weighed on the headline economic pulse reading,” said Loretta O’Sullivan, group chief economist with Bank of Ireland.

Consumer sentiment advanced during the month, adding 2.8 points to advance to 92.6 in March. Households’ assessment of their own financial situation also ticked up in March, as did buying sentiment, with 36 per cent considering it a good time to purchase big-ticket items such as furniture and electrical goods, up from 33 per cent in February.

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Economic growth

“Households had a little more spring in their step this month, which helped the consumer pulse recover some ground,” Ms O’Sullivan said, adding that despite all the economic uncertainty, households seem to have taken some comfort from the fact that the economy is continuing to grow and create jobs.

Ahead of the imminent triggering of article 50 to commence the Brexit process in the UK, sentiment among Irish businesses was less buoyant in March, however, falling by 2.5 points on February. While sentiment was broadly unchanged among retailers, and the construction sector picked up, the industry and services pulses fell back.

“Sentiment was mixed in March across the sectors, with a large drop for the industry pulse on the back of softer order books and hiring intentions, and a solid increase for the construction pulse,” Ms O’Sullivan said.

The survey shows that one in three businesses expects to spend more on investment this year compared with last year, with replacing and maintaining plant and equipment the main area of focus. Many firms are also intending to support staff development initiatives, with almost one in three in the industry (29 per cent) and services (31 per cent) sectors and one in five retail firms (22 per cent) saying they expected to increase their training budgets this year compared with last year.

House prices

The survey also points to continued pressure on house prices, with the housing pulse rising to 110.2, the second highest in the history of the series, as three in four respondents said they expected house prices in the next 12 months. Rent expectations were also in firm positive territory in March, with the majority of the view that rents will continue to rise over the coming year.

“The mismatch between supply and demand is continuing to impact the market and is also fuelling expectations for further price and rent growth,” Ms O’Sullivan said.

From a regional perspective, Dublin lagged the regions in March, with consumers and businesses in Munster and Connacht/Ulster expressing more confidence than those in and around the capital.

Consumers in all regions were more positive, however, and with the exception of Munster households, were also more confident about their own financial prospects.