Consumer sentiment falls to 18-month low as cost-of-living concerns intensify

Irish consumer sentiment fell to an 18-month low in April as concerns about living costs intensified.

The latest KBC Bank Ireland index recorded another sharp month-on-month drop in sentiment as consumers worried about their future spending plans and the worsening economic outlook generally.

"For Irish consumers, the prospect of a larger and longer lasting surge in living costs coupled with the horrific human and social consequences of war in Europe has understandably cast a dark shadow over recent sentiment readings," KBC Bank economist Austin Hughes said.

The lender’s sentiment survey fell from 67 in March to 57.7 in April. The index now stands well below its long-term average of 86.6, signalling a “very nervy Irish consumer”, KBC Bank said.

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"In contrast to the drop in confidence seen in the March survey where 'macro' nervousness dominated, the weakest elements of the April survey were those focused on household finances and spending, suggesting increasing strains in making ends meet," Mr Hughes said.

He also noted that the cumulative 24-point decline in the survey over the three months from February to April was the second largest on record and exceeded only by the collapse in sentiment triggered by the initial impact of the pandemic.

SMEs

Separate research from accountancy body ACCA and Grant Thornton meanwhile found that 15 per cent of Irish-based SMEs are expecting to lay off staff when the employment wage subsidy scheme comes to an end due to the rising costs.

The research, which reflects the views and outlook of 8,000 SMEs across a range of sectors, found that costs on average for SMEs have risen by 25 per cent which is having a major impact on profitability and the ability to meet payroll demands. The survey also found that 40 per cent of small businesses have had to pass on increased costs to the consumers and businesses they serve.

Grant Thornton chief economist Andrew Webb said SMEs are feeling the pinch from two directions, with utilities and bills rising but also from a more squeezed consumer who are having to spend more on essentials.

The latest barometers of sentiment come as headline inflation in the Irish economy surged to a 22-year high of 6.7 per cent and as the International Monetary Fund (IMF) slashed its forecast for global growth on the back of Russia's war in Ukraine.

“As in March, Irish consumers became increasingly worried about the broad ‘macro’ outlook,” Mr Hughes said, noting seven out of 10 consumers expect the Irish economy to be weaker in 12 months’ time while nearly half expect unemployment to be higher.

“A more threatening development was a marked pull-back in consumer spending plans following a slight but surprising improvement in this element of the survey in March,” he said.

The April 2022 purchasing climate was the weakest since the Covid-closedown-related results for April and May 2020 and among the lowest readings for this component in the survey’s 26-year history, Mr Hughes said.

“ Significantly, this may hint at a marked pull-back in consumer spending that is both forced and fear-driven,” he added.

The fall in Irish sentiment contrasted with an uplift in US sentiment. The bounce in the US was attributed to a recent easing in petrol prices due to the release of oil from the US Strategic Petroleum Reserve.