Confidence plunges as economic pain spooks consumers
CONSUMERS were spooked by bad news on the economy last month, a new survey shows.
The high cost of government borrowing, the rising cost of rescuing the banks and continuing job losses meant consumer sentiment recorded its sharpest fall in four-and-a-half years last month.
The KBC/ESRI index fell to 52 from 61 in August, as consumers remained rattled about their finances -- with another severe Budget on the way.
This compares with a figure of 49.6 in September 2009.
However, the latest reading remains above the all-time low in July 2008 of 39.6.
The decline in consumer sentiment in September is mainly due to a more negative perception, by consumers, of the outlook for the next 12 months.
Consumers have become more concerned about their finances, the economy and the labour market. Three out of four consumers expect unemployment to increase over the next 12 months, said David Duffy of the Economic and Social Research Institute.
KBC Bank's Austin Hughes said the risk highlighted by these numbers was that Irish consumers and businesses would pull back from spending, which would prompt a further drop in economic activity.
"There is now an acute awareness among consumers that more pain is coming," Mr Hughes said.
One likely substantial influence on sentiment was a series of sharp upward revisions to the potential cost of state support to Anglo Irish Bank and concern about public finances.
Mr Hughes said the key task for the Government was to convince consumers that the upcoming adjustment was manageable by ensuring that it cured the public finances and did not kill the economy.
"The normally remote world of bond markets has become all too familiar to Irish consumers in the past month and these usually 'unknown unknowables' prompted an element of panic among Irish consumers about their future," Mr Hughes said.
The fall in consumer sentiment in Ireland was sharper than in the US or the UK, and even sharper than the falls seen across the eurozone, he added.
Retail Ireland said the figures for September confirmed why the sector was in the doldrums.
Retail Ireland director Torlach Denihan said: "The fall in consumer confidence will only be reversed when the Government spells out what lies ahead in terms of spending reductions, increased charges for public services and tax increases.
"The public is sitting on significant precautionary savings, but will not spend it until they have greater clarity."