Ukraine crisis triggers drop in business and consumer sentiment

Business and consumer sentiment in Ireland has fallen in the wake of Russia's invasion of Ukraine.

Bank of Ireland’s latest “Economic Pulse” index, which tracks business and consumer sentiment, fell nearly four points to 84.4 in March but was still tracking up on this time last year when the economy was mired in Covid-related restrictions.

Consumer confidence took a bigger knock as households reacted to the escalation of the Russian-Ukraine conflict and the potential fallout for the economy and inflation.

The consumer pulse stood at 56.7 in March 2022. This was 14.5 lower than last month's reading and 13.1 lower than a year ago. Heightened uncertainty saw households take a more downbeat view of economic and employment prospects for the coming year this month, while soaring energy prices in the wake of Russia's invasion of Ukraine added to cost of living woes, Bank of Ireland said.

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Firms were affected by the latest uncertainty too, with three in five saying that they are finding it difficult to predict the future development of their business situation at present (up from 53 per cent in February).

However, about a third still expected to increase investment this year.

"Economic sentiment was down this month amid the horror of war in Europe. Russia's invasion of Ukraine has led to a humanitarian disaster and has clouded the economic outlook just as the fog of Covid-19 was lifting," Bank of Ireland chief economist Loretta O'Sullivan said.

“Against this backdrop the Consumer Pulse posted its second biggest monthly drop ever (the fall was around half the size of the pandemic-induced hit to confidence), with the business pulse also slipping in March.”

“The uncertain geopolitical situation is a headwind for GDP growth and living costs in Ireland. Much will depend on the duration of the conflict and on the actions of policymakers, factors which will also shape sentiment among households and firms in the period ahead,” she said.