Consumer sentiment deteriorated rapidly in December, as fears over the future of the euro and the outlook for the Irish economy knocked household confidence.
The KBC Bank Ireland/ESRI Consumer Sentiment Index tumbled to 49.2 from 60.1 in December, the biggest monthly drop since August 2001.
According to David Duffy of the ESRI, the main driver behind this sharp fall was a downward shift in consumer expectations for the coming year.
“The fall in consumer sentiment in December takes the index back to where it was at the start of the year,” Mr Duffy said.
The index has displayed massive volatility in recent months. Austin Hughes of KBC Bank Ireland explained that the unusually sharp swings reflect the level of worry and uncertainty being experienced by Irish consumers.
“During the December survey period, the very existence of the euro appeared in doubt,” Mr Hughes said. “In addition, as a wide range of spending cuts, tax increases and new charges introduced in Budget 2012 were debated, the prospect of declining spending power for the next couple of years likely unnerved many.”
However, it is believed that January data could show a bounce in consumer confidence due to the impact of aggressive price discounting in post-Christmas sales.
