Consumer confidence slides in October

Irish consumer sentiment has surprisingly dropped to its lowest level since June possibly as a result of the controversy over water charges and the likely impact of new mortgage controls on the property market.

Despite the recent spate of positive news about the economy, the latest KBC Bank/ESRI consumer sentiment index fell to 85.5 in October, its second largest monthly decline in nearly two years.

The index had surged to a near eight-year high of 92.8 the previous month. The report’s authors said they could not fully explain the sudden deterioration in sentiment.

“Our sense is that concerns in relation to water charges and perhaps even increased deposit limits could have played some role but it is not clear that these would account adequately for either the scale or breadth of the drop seen in the sentiment index in October.”

The survey was largely completed before last month’s budget, when most pre-budget commentary was upbeat and “not warning of impending pain”, suggesting this should not have weighed negatively on sentiment.

However, the report said: “A notably increased focus on water charges of late has crystallised concerns in relation to continuing pressures on household finances.”

Mortgages

“At the margin, the risk that new

Central Bank

proposals on mortgage lending could have some adverse consequences for the property market may also have weighed on sentiment in October.”

Nonetheless, the report also claimed the drop may simply reflect the uneven nature of Ireland’s economic recovery or be the result of a statistical “blip”.

The drop bears similarities to the large 7.8 point drop seen in the index in May, which coincided with the European and local elections. “As we noted then, declines of this sort might typically be expected to occur about once every couple of years. So having two in only six months is quite surprising.”

The weakening in October’s index is at odds with international global indicators.

The corresponding US measure rose to its strongest level since March 2007 while Euro area consumer confidence rose unexpectedly for the first time since May.

UK consumer confidence did fall marginally last month on a somewhat poorer economic outlook but that measure did not show the scale of change evident in the Irish index.

It is clearly the case that the European economic outlook is troubling but there is little to suggest that it warranted a major change in the thinking of Irish consumers in October.