Consumer confidence highest in 14 months

CONSUMER CONFIDENCE rose to a surprise 14-month high in June, indicating a belief that the worst fears for the economy may not be realised.

The KBC Ireland/ESRI measure of sentiment rose to 53.4 in June from 45.5 in May as a slowdown in the rate of job losses and an easing in the fall of tax revenues combined to reassure consumers. Any reading over 50 indicates growth.

Quarterly national accounts data due today and exchequer returns for June on Thursday will shed more light on the severity of the recession.

Austin Hughes, chief economist at KBC Ireland, said the scale of the improvement was surprising and could easily be reversed over the coming months. However, he said the reading was built on a positive trend of recent months and “hints that the worst may be over”.

“The sentiment index is still saying that Irish consumers are fairly nervous, but they seem to have drawn some encouragement from signs of ‘green shoots’ abroad and very faint signs that some domestic indicators may be starting to stabilise.”

The survey was carried out during the first two weeks of June meaning it included the impact of the tax and levy increases in April’s supplementary budget and the impact of the 0.25 per cent cut in interest rates to a record low of 1 per cent in May.

Mr Hughes said a more accurate gauge of the underlying trend might be evident from the three-month moving average which rose to 48.5 in June, from 45.5 per cent in May. He noted the increase was in line with other countries, particularly the US, where the comparable indicator has risen to its strongest level since February 2008.

While the Irish index showed a more positive outlook for job prospects and the economic outlook, the June reading also contained some downbeat assessments with two-thirds of consumers having a negative view of the economic outlook for the next year.

Mr Hughes said households had become more optimistic about their purchasing power due to falls in mortgage repayments and ongoing price-cutting by retailers, although consumers also felt it was a bad time to make large purchases, in part due to anticipated further discounting by retailers.

ESRI economist David Duffy said the measure of forward-looking expectations rose from 23.8 in May to 39.1 for June, as consumers became more optimistic about jobs and their household finances. Meanwhile, a survey by the European Commission yesterday showed economic sentiment in the 16 countries using the euro rose to 73.3 points in June from 70.2 in May.