Covid second wave and prospect of a Brexit hit fuel fears for recovery
Consumer sentiment hit a record low this month amid rising numbers of Covid-19 cases and the increasing possibility of a hard Brexit, according to the Bank of Ireland Economic Pulse.
Households took a more pessimistic view of prospects for the economy and jobs in October as public health-related restrictions were tightened.
The Economic Pulse combines the results of data tracking consumer and business sentiment into a single index.
Sentiment can indicate how willing a person or firm is to spend and invest. The chances of a swift recovery from the recession prompted by the Covid-19 pandemic and associated lockdowns will depend on how quickly both consumer and business sentiment recovers.
At 48.5 in October, the Consumer Pulse was down 4.3 on last month’s reading and 21.4 lower than a year ago. It comes as the country moved into Level 5 restrictions, which has forced thousands of businesses to temporarily shut.
Of those surveyed, three in four people are expecting unemployment to rise.
Spending sentiment among consumers was also slightly softer than in September, while savings sentiment was a firmer – four in five considered it an appropriate time to save, up from 75pc last month.
Attitudes among firms was also more subdued, with companies downgrading near-term expectations for activity and jobs.
While Budget 2021 included additional supports for businesses, Covid- and Brexit-related uncertainty weighed on the mood.
The Business Pulse looks at four sectors; construction, retail, services and industry. All four posted weaker readings this month, with the Services Pulse seeing the biggest drop amid further restrictions on the hospitality sector.
Dr Loretta O’Sullivan, chief economist at Bank of Ireland said the results were “disappointing but not surprising”.
“Heightened Covid and Brexit uncertainty saw households and firms pare back their expectations for the economy, business activity and jobs and with Level 5 restrictions now imposed, the growth outlook for the fourth quarter of the year is challenging,” Dr O’Sullivan said.
The report, which is conducted in conjunction with the European Commission, surveys 1,000 households and approximately 2,000 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.
It comes as German business morale fell for the first time in six months in October, weighed down by companies' concerns about rising coronavirus infection rates that are making them more cautious about the coming months, a survey showed yesterday.
The Ifo institute said its German business climate index fell to 92.7 from a revised 93.2 in September.
"Companies are considerably more sceptical regarding developments over the coming months," Ifo president Clemens Fuest said. "In view of rising infection numbers, German business is becoming increasingly worried."
Consumer morale in Europe’s largest economy also fell as fears of a second coronavirus wave made Germans less willing to spend.
Additional reporting Reuters