Irish consumer confidence deteriorated in June according to a major survey as concerns over inflation, war in Ukraine and threats to the Northern Ireland protocol reignited household fears for the economy.
The Bank of Ireland’s economic pulse survey also found that the level of business confidence had fallen below pre-pandemic levels for the first time this year.
Separate analysis released today by Goodbody shows inflation is starting to eat away at household incomes as it downgrades its forecast for growth next year.
“Global markets have been choppy lately as energy sanctions on Russia have been widened and major central banks have upped the ante in their fight against inflation,” said Loretta O’Sullivan, chief economist. of the Bank of Ireland group.
“Irish households were also jittery as the Consumer Pulse fell in June after rebounding in May. Looming interest rate hikes mean higher mortgage bills for some households and contributed to some slippage in the Housing Pulse this this month.
The Economic Pulse, conducted by Ipsos MRBI on behalf of Bank of Ireland, surveys 1,000 households and 1,350 businesses each month. The combined pulse was 78.8 in June, down 3.9 from a month ago and 11 points lower than a year ago.
At 51.3, the Consumer Pulse posted its second lowest common reading as households took a more pessimistic view of the economy in particular.
As consumer price inflation has accelerated, the share of households saying they are “making ends meet” has also accelerated. This stood at a third in the June survey, up from a quarter at the start of the year.
Business Pulse came in at 85.6 in June, down 3.9 from May and 7.5 from a year ago. This was mainly due to a sharp decline in sentiment in the services sector which had seen five months of gains.
The backdrop for businesses in general remains challenging, with three in five currently struggling to predict the future course of their business situation.
In terms of costs and prices, the share reporting an increase in non-wage input costs over the past three months remained stable in June, although still high at 87%.
According to Goodbody, inflation in Ireland is expected to approach 10% by the end of the summer, the highest since the early 1980s. He said real profits are expected to fall to 4% in 2022, the biggest drop since the aftermath of the financial crash.
However, he said Irish households, on the whole, are in a good position to face this pressure.
“Household net wealth is at record highs and households have accumulated deposits of €23 billion (17% of disposable income) during the pandemic period. In addition, Irish households have saved more than any other country over the past two years,” the analysis said.
“A normalization of this savings behavior should also limit the negative impact on consumer spending.
Goodbody said it was revising its forecast down with domestic demand revised to grow 2.6% next year, following a 4.7% expansion in 2022.
“The consumer continues to be the main driver of growth in 2022 as savings behavior normalizes. Rising production in construction and business investment will also contribute to growth. public funds, after two years of largesse, will contribute negatively to growth for the first time since 2013,” the analysis says.