Irish consumer sentiment starts 2023 on a stronger note
January sentiment reading at a 7 month high, signalling nervous but not entirely negative Irish consumer
Biggest improvement in household finances elements of survey as fuel prices fall, fiscal supports kick in and many households weather Christmas spending better than feared
Special 5-year outlook questions suggest marked downgrade to longer-term economic outlook
5-year view of household finances notably weaker than twelve months ago with views on house price outlook also more mixed
Initial survey of Northern Ireland consumers shows more widespread negativity about economic outlook, but views on household finances not markedly different on either side of the border
CONSUMER MINDSET REPORT
Read commentary and view charts related to this month’s Consumer Sentiment Index.
Irish consumers notably less negative at the start of 2023
Irish consumer sentiment rose strongly in January as a softening in oil prices, strong domestic economic data and a seasonal switch-off from business and political news encouraged a less negative if still nervous, view of the economic and financial circumstances of Irish households.
The improvement in Irish consumer sentiment in January mirrored gains in similar confidence measures in the US that likely reflected falling fuel costs and Germany where fiscal supports may also have played a role. In contrast, UK consumer confidence weakened in January reflecting growing negativity about the economy and concerns about the health of the public finances.
The Credit Union Consumer Sentiment Index, rose from 48.7 in December to 55.2 in January, putting the index at its strongest level since last June. The 6.5 point monthly increase was the largest since a 7 point gain in January 2022, a result that hints at some element of seasonal lift.
Our sense is that the switch over Christmas and new year away from the normal routine to less news-focussed time spent with family and friends may have eased consumer concerns somewhat. However, as the diagram below illustrates, at 55.2, the current consumer reading is some significant distance below the 85.6 point average of the now 27 years of Irish consumer sentiment survey data. This suggests Irish consumers remain very much aware of the economic and financial challenges that the new year holds.
All five main elements of the consumer sentiment survey showed improved readings in January relative to December, although the table above also shows how much weaker they are now than in January 2022. In contrast to the December results, the strongest month-on-month changes were in those elements of the survey focussed on household finances, rather than the broader economic climate.
This balance may suggest that many consumers feel they weathered the financial demands of Christmas better than feared while, perhaps, also benefitting from paying reduced attention to economic developments over the holiday period. Finally, the receipt of fiscal supports in the form of energy bill credits and 'Christmas bonus' welfare payments may also have assisted in the upgrade to the outlook for household finances.
The modest improvement seen in the January Credit Union Consumer Sentiment report in relation to consumer thinking about prospects for the Irish economy through the next twelve months was likely driven by very positive news on the 2022 outturn for the public finances, as well as continued low unemployment data during the survey period.
Consumer thinking regarding how their personal financial circumstances had evolved through the past twelve months was also modestly better in January than in December, possibly reflecting some easing in fuel costs but, at current levels, this element of the survey is still signalling major pressure on household finances.
Encouragingly, the improvement between December and January in consumer thinking in regard to household finances over the coming twelve months was more pronounced, perhaps suggesting that consumers think that the worst may behind them in terms of the pace of increase in the cost of living. Arguably, improved thinking in this regard could also owe something to expectations of significant and sustained fiscal support. In this context, it is notable that the Credit Union Consumer Sentiment Index has risen in three of the four months since Budget ’23 was delivered.
A sense that 2023 could prove difficult rather than disastrous for Irish consumers is also suggested by a marked pick-up in spending plans in the January sentiment reading. In part, this likely reflects bargain-hunting in the post-Christmas sales but even that implies that consumers are both able and willing to spend provided the offering is sufficiently attractive. This may be a tentative signal that many consumers sense that the worst could be over in terms of the intensity of price pressures facing their households.
What do Irish consumers think about their longer term economic and financial prospects?
In recent years, a range of developments from the UK decision to leave the EU, through the pandemic and war in Ukraine have subjected Irish consumers to a sequence of large and disruptive shocks to their economic and financial circumstances. Understandably, these unpleasant surprises have framed consumer thinking on their short-term prospects, but have they also altered long-term thinking? As was the case in 2022, the January sentiment survey contained a number of special questions asking consumers how they expected a number of key economic metrics to develop on a five-year view.
The first question asked consumers about ‘macro’ growth prospects. As the diagram below illustrates, views are now broadly balanced as to whether economic growth will be stronger or weaker than in five years’ time. As the diagram also illustrates, this represents a markedly weaker assessment than that of a year ago.
The weakening in consumers’ views on the Irish economy’s longer-term prospects comes despite another markedly resilient performance in the past year in the face of extremely challenging global economic conditions. Our sense is that the downgrade may be due to a judgement that persistent pressures from an increasingly ‘stormy’ global environment are likely to take a toll on domestic growth prospects. A view that current cost-of-living pressures could continue or cause lasting strains may also have figured in consumer thinking of late. Increased nervousness about ‘tech sector prospects could also have contributed to a downgrade of the longer-term outlook. Finally, It might also be the case that consumers see domestic growth constraints in the shape of substantial bottlenecks in economic and social infrastructure and possibly skill shortages in some sectors as representing a major speedbump to the growth outlook.
As was the case a year ago, consumers outside Dublin, females and those on lower incomes were notably more negative on Irish economic prospects. However, in contrast to twelve months ago, younger consumers were notably downbeat, possibly reflecting particular concerns regarding to access to housing.
The January survey also asked consumers their views on the outlook for Irish house prices. Although the results shown in the diagram show a substantial downgrade from the 2022 survey, it remains the case that there is a clear balance of opinion that house prices will continue to increase materially. In this context, the proportion of consumers that envisage further increases is broadly unchanged.
There has been some increase in those expecting a correction in Irish house prices-from 10% a year ago to 29% now, presumably based on diminishing affordability and increased borrowing costs. The same factors mean there has been a sharp drop in those expecting persistent increases in property prices-from 70% a year ago to 44% in this survey.
As was the case in the previous survey, younger consumers tended to have a notably more negative view of the outlook for house prices than their older counterparts while females were also more negative than males but there were no pronounced geographic or income-related differences.
The January Credit Union Consumer Sentiment Survey, in partnership with Core Research, also asked consumers how they expected their household income to evolve through the next five years. The graph below shows responses to this question. The survey question didn’t specify if whether household income should be considered in nominal or inflation-adjusted terms. However, we would interpret the responses given as reflecting consumers views as to their purchasing power.
As the graph shows, there has been a marked weakening in Irish consumers’ expectations for their longer-term income prospects in the past twelve months. While there has been a clear drop in the share of consumers that expect their household income to be higher-from 39% to 35%, the more worrisome development is that a substantial 27% of consumers now think their household incomes will be weaker in five years’ time, markedly higher than the 16% who thought that a year ago.
The most negative responses to this question came from those who are currently struggling to make ends meet and from those aged 55 and older. The responses of the latter group may speak of concerns around inadequate pension provision that contrasts with the more positive expectation for house prices on the part of older consumers.
The Credit Union Irish Consumer Sentiment Survey is a monthly survey of a nationally representative sample of 1,000 adults. Since May 2019, Core Research have undertaken the survey administration and data collection for the Survey. The survey was live between the 4th-16th January 2023.
