Fragile optimism: consumers tire of scrimping and switching

A new survey indicates, very faintly, that if things are not quite getting better, they could soon stop getting worse

IS IT POSSIBLE we are finally shaking off the economic gloom that has hung over us like a black cloud for more than four years and are now allowing the faintest glimmers of optimism and confidence to shine through? It just might be.

While most people would probably agree it is too early to suggest the recession is coming to an end, a number of economic indicators and surveys published this week suggest consumers are weary of relentlessly scrimping and saving and are starting to allow themselves to think that maybe, just maybe, things are going to get better. Or, at least, that they are going to stop getting worse.

A KBC Ireland/ESRI consumer sentiment survey published on Tuesday shows a dramatic improvement in our outlook as people start to believe that some of the direst fears about the economy might have been overstated by the prophets of gloom.

The index is broken into two parts. One measures consumers’ outlook for the next year and the second focuses on the here and now. Both are positive for the first time in a very long time. In fact, the consumer sentiment index is at its highest for nearly five years, and for seven out of the past eight months sentiment has improved.

“Five years ago, Irish consumers were becoming increasingly nervous about the economic outlook,” says Austin Hughes, the chief economist at KBC Bank. “On the evidence of recent data, those fears are beginning to lift.” He has described trends in consumer sentiment as “consistent with the prospect of a stabilisation in household spending, a development that could make quite a difference to the outlook for domestic economic activity”. According to Hughes, the key feature of this year’s surveys is the unambiguous reduction in the number of consumers who feel things are going to keep getting worse. A year ago, 59 per cent of consumers felt sure the economy would become more depressed. That dropped to 34 per cent this week.

Hughes is not getting out the bunting just yet, and there is no suggestion that the boom times are on the way back. Instead, he believes the improvement in sentiment “is primarily driven by an easing of fears rather than by a more positive view of either the outlook for the Irish economy or for consumer finances”.

The fragile optimism could still be destroyed by another heavy-handed budget with cuts demanded by the troika, and Hughes wonders “whether a still-modest improvement in the mood of Irish consumers can withstand the threat that budgetary changes could markedly reduce household spending power in the coming year”.

Data from the CSO published on the same day focused on retail sales figures, and the news is quite positive. While shops have not been reporting a bumper summer, at least the precipitous falls of recent years have eased.