Consumer sentiment hits two-year high as conditions normalise

KBC Bank index suggests ‘shadow of the pandemic is gradually lifting from economy’

Four of the five main elements of the sentiment survey posted relatively modest gains in June.

Four of the five main elements of the sentiment survey posted relatively modest gains in June.

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Irish consumer sentiment is at a two-year high following a modest monthly increase in June, according to the latest analysis from KBC Bank.

The monthly reading for the KBC Bank consumer sentiment index of 87.2 is only marginally higher than the May figure of 85.8, but the reading is also back in line with the 25-year average of the series (86.8), suggesting sentiment has been normalised.

“The results suggest the shadow of the pandemic is gradually lifting from the economy and, as a result, consumers are becoming less concerned about their current circumstances as well as less fearful about the future,” said KBC Bank economist Austin Hughes.

This is further supported by the fact that June marks the fifth successive monthly increase in the index – the first time that has happened since the beginning of 2007.

Four of the five main elements of the sentiment survey posted modest gains in June relative to their May readings, suggesting the month marks a further incremental improvement in the mood of consumers rather than any dramatic change.

“In that respect, the phased reopening of economic activity might be seen as providing re-assurance that the reducing nervousness of previous months had been well-founded,” said Mr Hughes.

The general outlook for the Irish economy registered its best reading since November 2018, but long-lasting concerns about Brexit that predated the pandemic meant the May survey showed negative views on the economic outlook still exceeding positive views.

“While the June survey suggests brighter days ahead, it does not seem consumers see entirely cloud-free economic skies,” noted Mr Hughes.

There was a marginal improvement in thinking on the jobs market. “In circumstances where the re-opening of the economy saw many return to work, it might have been expected that this area of the survey would have seen a larger uptick,” continued Mr Hughes.

“However, concerns about scarring impacts on the employment prospects of those in areas not yet opening may have dampened this element.

“It should also be noted that, in contrast to the broader economic outlook, the past two months have seen a move into a net positive balance of responses to this question, pointing towards some easing in unemployment over the next two months, the first time this has been seen since mid-2019.”

Past year

Mr Hughes said consumers were also modestly less negative in June about the way their personal finances had developed through the past 12 months.

“This probably reflects the resilience of household incomes which, in turn, likely owes much directly and indirectly to the maintenance of major fiscal supports through this period,” he said.

“The announcement during the survey period of the phased reduction and ending of these supports through the next nine months may have been one element in the weakening of expectations for household finances through the coming year that was the only negative element of the survey in June.

“Talk of the possible need for future tax increases, increasing housing costs and growing global concerns about inflation may also have contributed to this element’s notable divergence from the rest of the survey in June.”

A poorer assessment of future financial circumstances may also have weighed on consumers’ spending plans.

“While consumers judged the buying climate to have improved in June, the increase was relatively modest in the context of notably greater opportunities to spend as the economy re-opens,” added Mr Hughes.

“We would also argue that this points towards a clear but still cautious approach on the part of Irish consumers that might suggest the pick-up envisaged in consumer spending through the summer might be forceful rather than frenzied.”