Consumer sentiment falls sharply

There was a sharp fall in consumer sentiment last month as a harsh budget and the €85 billion EU/IMF bailout soured the national mood.

But a survey published today found that the reaction to the developments could have been much worse and that many believe the adjustments involved will help rather than hinder Ireland's economic prospects.

Following an unexpected rise in November, the KBC Ireland/ESRI Consumer Sentiment Index dropped from 48.4 to 44.4 last month. The index has now fallen for five of the last six months.

The index stood at 53.3 in December 2009, underscoring how difficult a year 2010 was for Irish consumers.

The European Commission measure of consumer confidence also weakened in December reflecting declines in most euro zone countries, with the somewhat surprising exception of Portugal which is now engulfed in bailout speculation.

KBC said that, considering all that happened last month, the four point decline in consumer sentiment should be seen as a relatively modest drop.

It said the slide was more modest than expected as Irish consumers had already discounted a good deal of bad news in earlier months.

Three of the main components of the survey weakened last month while the other two strengthened.

The negative readings related to personal finances and spending while the two macroeconomic elements both registered monthly gains.

KBC said this combination could suggest consumers are aware that the looming adjustment will hit them hard in the pocket, but that it could improve Irish economic prospects.

"There appears to be an acceptance that any economic turnaround is likely to entail significant personal pain," KBC economist Austin Hughes said.

David Duffy of the ESRI said public concern about the economic environment grew in December, with personal finance a main source of distress.

Some 71 per cent of those surveyed see their household finances deteriorating in 2011 while only 3 per cent anticipate an improvement. More than 70 per cent reported that their finances had worsened during the past year.

Almost three quarters (74 per cent) of those surveyed expect Irish economic conditions to weaken in the year ahead.