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Consumer sentiment stalls as recovery fails to boost spending

Ireland’s economic recovery is still not boosting consumers’ spending power, with rising accommodation costs and water charges among the elements weighing on confidence levels.

The latest consumer confidence index — jointly published by KBC Bank Ireland and economic think-tank, the ESRI — shows a reading of 98.5 points for May, largely unmoved from the 98.7 reading in April. The latest three-month reading shows a rise from 97.6 to 98.4 however, showing consumer confidence isn’t slipping.

While the survey shows more consumers are upbeat about their job status than at any time since 2000, the authors suggest cost of living increases including motor insurance rises and water charge bills are hampering broader spending plans.

“Consumers may need to see a more tangible improvement in their own financial circumstances or, at least, a very real prospect that this will occur before long, if the sentiment index is to move materially higher,” said Austin Hughes, chief economist at KBC Bank Ireland.

“Consumers’ assessment of the buying climate weakened less in May than their assessment of their own personal finances. So, the survey doesn’t suggest any marked retracement in consumer spending. Instead, it implies we shouldn’t expect a generalised consumer spending boom to take hold,” he said.

“A range of new job announcements of late confirmed that the improvement now underway in the Irish economy is not confined to measures such as GDP, that are somewhat removed from the everyday experience of the average consumer. May results showed half of those surveyed expect a further improvement in the jobs market in the next 12 months — the best reading in 14 years,” Mr Hughes said.

Yesterday’s survey coincided with Investec’s latest health barometer for the country’s services sector. That index returned a three-month high reading of 61.4 for May, with new business generation, job creation, profitability and confidence all on the up across the sector. Job creation among services firms reached its highest point so far this year, in May.

“Data for the sub-sectors surveyed in this report — business services, financial services, technology, media and telecommunications and travel/ leisure — illustrate that the increased hiring activity is not concentrated in any one area, with all four sub-sectors simultaneously recording growth in headcount, as they have done for 18 successive months now,” said Investec Ireland’s chief economist Philip O’Sullivan.

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