Irish consumer sentiment lifts as optimism about reopening builds

Irish consumer sentiment rose in August as optimism about the reopening of the economy built.

The latest KBC Bank Ireland consumer sentiment index rose 86.5 in August from 84.9 in July, largely but not entirely reversing last month's drop. Consumer sentiment rose to a two-year high of 87.2 in June amid the first phase of reopening.

The marginal rise here contrasted with modest declines and weaker than expected out-turns in confidence indicators for the euro area and UK, and a more pronounced fall in the most comparable survey for the US.

"Irish consumers are gradually if unevenly putting the extreme worries of the past couple of years – fuelled first by Brexit and then the coronavirus – behind them," KBC Bank Ireland economist Austin Hughes said.

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“However, with the Delta variant at least partly offsetting the impact of the roll-out of vaccinations and the contours of the post-pandemic Irish economy still unclear, consumers here appear relatively wary in their response to a generally improving situation.”

Mr Hughes said the rise in sentiment here was encouraging in the context of declines in similar surveys elsewhere.

“The comparatively cautious tone of Irish consumer confidence readings through the past year and a half coupled with a strong vaccination uptake in Ireland likely explain the contrast between the slight increase in the Irish survey in August and declines elsewhere.”

Mr Hughes noted that while the fallout from the pandemic has been global in nature, Brexit-related concerns have been an additional source of concern for Irish consumers.

“Our sense is that the ‘under-performance’ of Irish consumer confidence through the past couple of years owes much to the recent and painful legacy of the financial crisis that likely fostered greater nervousness in Irish consumers in relation to the potential economic fallout from the pandemic than in their counterparts in many other countries,” he said.

Mr Hughes also noted that the increase in unemployment here over the past 18 months has been more pronounced than in other countries, and may have encouraged fears of permanent “scarring” of jobs prospects.

Unemployment

Euro area unemployment stood at 7.7 per cent in June, only modestly up from 7.4 per cent in February, 2020.

The latest data show US unemployment has fallen notably back to 5.4 per cent in July after a dramatic initial increase from the historically low 3.5 per cent rate seen in February 2020.

Irish unemployment rose from 4.9 per cent in February 2020 to stand at 6.5 per cent in July this year, while the Covid-adjusted measure was still at an elevated 13.5 per cent although well below its initial peak.

“Our sense is that the comparative ‘out-performance’ of Irish consumer sentiment in August is partly the result of greater caution in previous readings here and partly a reflection of particular drivers elsewhere such as disappointing vaccination uptake amid the increase in the Delta variant, sharp price increases in many vacation-related goods and services and the looming end of some income supports in the US,” said Mr Hughes.