Consumer sentiment falls again amid new spike in Covid-19 cases

Irish consumer sentiment slipped back in August on fears of a renewed spike in cases of Covid-19. Having risen for three straight months, the KBC Bank Irish consumer sentiment index fell to 58.9 in August from 62.6 in July. This was the first decline since a collapse in April that took the index to its lowest level since October 2008.

The bank said the 3.7 point drop in August was entirely different to the 34.7 point drop in April and not unusual in terms of the normal monthly fluctuations in sentiment.

"The August sentiment results do suggest any improvement now under way in the circumstances of Irish consumers is uneven and tentative," said KBC Bank Ireland economist Austin Hughes.

“There have been some very positive elements in recent spending data that, together with the trend in consumer confidence in recent months, point to a clear turnaround in sentiment and spending from April’s low point.

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"However, the muted survey results for both July and August suggest that we may be seeing a limited rebound rather than the first signs of a lasting recovery in Irish economic conditions of late," Mr Hughes said.

New restrictions

Last week the Government announced new restrictions to combat an upturn in coronavirus cases, partially reversing the phased reopening of the economy, with people asked to work from home and avoid public transport until September 13th. This has thrown the reopening plans of many businesses into disarray.

"Our sense is that the key driver of the pull-back in consumer sentiment in August was the resurgence of coronavirus concerns highlighted by the postponement of phase four of the easing of restrictions nationwide and the re-imposition of 'local lockdowns' in Kildare, Laois and Offaly," Mr Hughes said.

“In that respect, the survey may capture a consumer attempting to reassess the likelihood of lasting disruptions from coronavirus,” he said.

“The sense that the pandemic was in the past that fuelled sharp improvements in sentiment in May and June no longer prevails. As a result, both direct health-related concerns and the knock-on impact on the outlook for economic activity and employment likely weighed on sentiment in August.”

The sharpest decline in sentiment in August occurred in relation to the outlook for employment, with consumers likely to be focusing on the adverse implications for jobs of stricter-than-anticipated lockdown measures. The broader outlook for the Irish economy was also downgraded.

There was, however, a a marginal improvement in the assessment of financial conditions over the past 12 months, possibly supported by the Government’s announcement of the extension of its wage support schemes.