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Consumer confidence improves but at slower pace

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KBC Bank’s Austin Hughes

KBC Bank’s Austin Hughes

KBC Bank’s Austin Hughes

Consumer confidence improved slightly in July, following notably larger gains in May and June.

It comes as the Government is due to announce a stimulus package this week aimed at boosting the economy which has been badly hit by Covid-19.

The Consumer Sentiment Index figures for July show that while conviction in the economy is continuing to recover, consumers remain anxious and confidence is well below where it was at the beginning of the year.

While there is a strong sense that the country has moved past the worst in terms of the Covid-19 impact, the relief that propelled the May and June surveys forward has been tempered by renewed concerns in regard to large and lasting damage to the outlook for activity and employment.

It remains to be seen if this is a temporary pause or a sign of persistent problems facing consumers, according to the index.

"By highlighting the still anxious mood of Irish consumers, the survey emphasises the need for a July stimulus package that credibly improves the outlook for activity and employment," KBC Bank economist Austin Hughes, who compiles the index, said.

The small increase in sentiment this month, which comes at a time when the economy was reopening, likely reflects the restraining influence on confidence of a number of downbeat economic forecasts through the survey period.

In addition, those surveyed may be swayed by some worrying developments in relation to the path of the virus at home and abroad of late as some countries start to experience second waves of Covid-19.

The KBC Bank Irish consumer sentiment index climbed to 62.6 in July from 61.6 in June.

This is a considerable improvement from the recent April low point of 42.6. However, it remains way below February's pre-pandemic reading of 85.2.

The index averages are currently similar to levels previously seen in mid-2013 when the economy was still struggling to shake off the severe impacts of the financial crisis.

Elsewhere, there was a slight reduction in the number of consumers expressing negative views in relation to their personal finances.

Looking at the macro-economic elements of the survey, while these were a key driver of improving sentiment in May and June, they were the weakest elements of the survey in July.

There are two factors that may be responsible for this. First, while consumers may have appreciated signs of a resumption of economic activity, they are becoming increasingly aware that this is not a return to the scale or shape of activity that prevailed prior to the pandemic.

A second negative influence on the macro elements of the index in July could have been a sequence of downgrades to domestic and external forecasts for the Irish economy.

Overall, only one in 20 consumers expect the economy to strengthen through the next 12 months, compared to one in eight in June.

Similarly, only one in four see job prospects improving over that same timeframe compared to one in three a month ago.

The index surveys a sample of 1,000 adults.

Irish Independent