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Wednesday 1 October 2014

Consumer spending to stabilise

Published 11/02/2013 | 00:06

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A report predicts that spending power for Irish households will be almost unchanged in 2013

Consumer spending power in Ireland is set to stabilise this year with an increase in 2014, a leading business body has forecast.

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The deal the Irish Government struck to restructure the state's debt burden will help boost consumer confidence, business group IBEC predicted.

In the latest edition of its Irish Consumer Monitor, IBEC said mortgaged working households would see the greatest gain in their spending power this year, on the back of low mortgage interest rates, while unemployed households and those in fixed incomes would fare worse.

The analysis breaks consumers into four distinct household types: mortgaged working, non-mortgaged working, retired and unemployed. Spending power is measured as after-tax income, less essential bills such as mortgages, energy and health.

The report predicts that spending power for Irish households will be almost unchanged in 2013 (+0.2%) and is forecast to grow by about 0.7% in 2014. Mortgaged households will see the greatest gain (1.4% in 2013 and 1.9% in 2014) as the low mortgage interest costs of 2012 carry over into 2013.

Increased costs, such as health, will hit those on fixed incomes worse than working households, according to the report.

Consumer fundamentals (gross incomes, cost of mortgages, private sector employment) were found to be improving, but the report predicts that there will not be robust growth in spending until both consumer fundamentals and sentiment substantially improve.

IBEC Senior Economist Reetta Suonpera said: "The main cause of the unemployment crisis is the lack of consumer confidence and weak domestic demand. Getting people back to work is the priority, but to do this we need a return to more normal, sustainable consumer spending levels.

"Consumer fundamentals have now stabilised and the promissory note deal could provide real momentum to consumer confidence. The private sector began to add jobs during 2012, a tentative bottoming-out of house prices means that household net wealth is no longer falling and debt levels are starting to ease, albeit from high levels.

"In the absence of further bad news, consumer sentiment should recover during 2013. However, any unforeseen shocks pose a risk to the fragile recovery seen to date. It appears that the worst is now over for the consumer market, but a more substantial improvement in consumer fundamentals and sentiment is required before we see a robust growth in consumer spending."

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