Consumer and business sentiment both dropped in December as fears about the impact of the Omicron variant of coronavirus took hold, according to the latest Economic Pulse index by Bank of Ireland.
The index registered its worst reading in nine months as high Covid-19 case numbers and the fast spread of Omicron led to a new raft of public health restrictions, mostly affecting the hospitality and entertainment sectors.
Households and companies were “on edge” this month, the bank said.
“The Economic Pulse ended 2021 on a soft note as Omicron woes added to the Delta blues. Consumer and business confidence dropped again this month as the Government ramped up measures to curb the spread of Covid-19 and people reduced their social activity,” said Dr Loretta O’Sullivan, group chief economist for Bank of Ireland.
“Uncertainty about the path of the virus and whether further mitigating actions will need to be taken also contributed to the broad-based nervousness evident in December’s survey results, with households worried about the economy and firms worried about business activity,” Dr O’Sullivan said.
“Looking ahead to 2022, pandemic headwinds are likely to be a feature of the January data too, though the acceleration of the vaccine booster campaign should start to pay some dividends as we move into the new year.”
The deteriorating public health situation provided an unsettled backdrop for businesses this month and sentiment waned across sectors. But with the experience economy “very much in the eye of the Covid storm”, the services index came in “quite a bit below” the industry, retail and construction indices.
Supply disruptions occurred once more in December and are continuing to have spill-over effects. Three in four firms reported increases in non-labour input costs over the past three months, while 55 per cent said that they are likely to increase their selling prices in the period ahead.
Households, meanwhile, grew gloomier about the economic situation this month, with their assessment of the labour market also taking a turn for the worse amid rising virus cases and new restrictions. The share expecting unemployment to increase in the coming year (41 per cent) is now greater than the share expecting a fall (36 per cent).
Buying sentiment remained steady among consumers, though it is still down compared to the summer. Four in five households think house prices will rise next year and seven in 10 think rents will go up.
The index is based on a survey of 1,000 households and 1,350 businesses conducted on behalf of Bank of Ireland by Ipsos MRBI, with the data feeding into the EU Commission’s programme of business and consumer surveys.