CONSUMER CONFIDENCE reached a five-month high in February, but the underlying recovery was “tentative”, a new survey showed.
The KBC Ireland/ESRI consumer sentiment index for February rose to 50.3, up from 48.7 in January and the highest seen since September.
The improvement was due to an increase in the forward-looking expectations index, which rose from 31.5 in January to 37.8 last month, although consumers remained gloomy about future finances.
The improvement came despite bad news during the survey period, and the impact of Budget 2011 measures on consumers’ spending power.
“The run-up to the election focused heavily on Ireland’s economic problems and we also saw downward revisions to growth forecasts as well as further increases in energy and food prices,” said KBC Ireland economist Austin Hughes.
“In these circumstances, the marginal increase in sentiment hints that Irish consumers have prepared themselves for a lot of bad news. They may also have responded to evidence of stronger global growth as well as tentative signs of improvement in a variety of domestic economic indicators.”
The gain in the index was more likely an indication of a broad stabilisation instead of a clear improvement, the survey said. It noted that the underlying trend showed a fractional improvement in February, from 47.1 in January to 47.8 last month. However, the index of current economic conditions weakened from 74.2 in January to 68.9 in February.
“Part of the improvement in sentiment is due to a move from a negative to a neutral outlook by respondents, suggesting a cautious outlook by consumers. The underlying message from the analysis is that consumers remain cautious in the present circumstances,” said David Duffy of the ESRI.
The results are still far below long-term averages, Mr Hughes said. That figure is currently 89.5.
The survey showed a negative reading regarding the buying climate, as post-Christmas sales ended and buying habits remained “restrained”.
“The February reading points towards the persistence of subdued spending patterns through 2011,” it said. “However, the scale of pull-back in February was, like the seasonal increase that preceded it in January, relatively modest compared to the experience of previous years. So, there is little in these data that threatens a marked reduction in consumer spending intentions in the coming year.”
Irish consumers are also facing a number of challenges and although households were less negative about the coming year, some 60 per cent of consumers still said they expect finances to worsen in the year ahead, and only 7 per cent expect an improvement.
“In particular, looming ECB interest-rate increases could take a further toll on confidence in the months ahead,” Mr Hughes said.
“That said, February survey results hint at some resilience in sentiment which might suggest spending may not be quite as weak as feared.”
