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Irish consumer sentiment hits highest level in two years

08.02.2010
Irish consumer sentiment rose to its highest level in two years, according to a closely watched index.

The overall KBC Ireland/ESRI Consumer Sentiment Index rose sharply to 64.6 in January from 53.3 in December 2009.

This improvement compares to a reading of 39.6 in July 2008, when the index was at its all time low.

A good time for major purchases
According to David Duffy of the ESRI, the sharp improvement in consumers’ perceptions of the current environment reflects the view that January was a good time to purchase major items.

“Historically this component has improved every January, reflecting, at least in part, the winter sales, followed by a more subdued figure in February. We expect this pattern to continue and as a result some moderation might be anticipated next month,” he added.

Duffy also cautioned that although the overall index shows a strong increase, the underlying figures suggest a more cautious optimism, with more moderate improvements across the other index components.

Probably too good to be true
While Austin Hughes of KBC Ireland acknowledged that the scale of improvement in consumer sentiment in January “looks too good to be true and it probably is”, he added that it would be wrong to concentrate solely on this aspect of the survey.

“The January reading reflects an improvement in all five components of the survey – the first time this has happened in four years,” he pointed out.

“So, it seems clear that the mood of consumers is brightening, reflecting an easing in fears about economic prospects and perhaps a generally positive assessment of the December Budget.”

No ‘irrational exuberance’
Hughes also pointed to the fact that the January reading does not suggest “irrational exuberance” has taken hold of Irish consumers: “Even after January’s increase, current levels of the survey suggest consumers remain fairly cautious but they are notably less pessimistic than they were.”

Like Duffy, Hughes also pointed to a possible rolling back of January’s improvement in next month’s survey: “It is likely that the sharp improvement in the buying climate will be at least partly reversed in the February survey as Christmas sales end and bills arrive.

“However, the scale of increase in this element last month may point to a slightly less gloomy outlook for consumer spending through 2010. More importantly, it should be noted that the buying climate only accounted for about a third of the improvement in consumer sentiment in January. So, the survey is pointing to a clear and broadly based pick-up in confidence,” Hughes said.