Consumer sentiment improved for the third month in a row in November, as greater optimism about the outlook for the Irish economy outweighed continuing concerns about household finances.
The IIB Bank/ESRI consumer sentiment index rose modestly last month to 87.9 from 86.7 in October.
IIB's chief economist Austin Hughes said that with this week's Budget and ECB interest rate decisions likely to have a major impact both on spending power and on confidence, the outlook for consumer sentiment appears finely balanced.
The economist said that while consumers were a little less fearful about the general economic outlook last month, they were more concerned about their own personal financial situation. There also seemed to be a greater nervousness about the housing market, he added.
He said that 2006 had been a disappointing year for the average consumer. 'We think the survey argues that Mr Cowen would be right to give a significant boost to household spending power in Budget 2007,' Mr Hughes states.
'Last week's employment data also suggest that the supply side of the Irish economy is sufficiently strong and flexible to ensure that a substantial budget boost to demand won't automatically lead to markedly higher inflation,' he added.
The survey shows that just under 16% of Irish consumers think their household finances will improve in the coming year, the smallest number since October 2003. It says that concerns about rising interest rates have played an important role in the marked downgrading of the outlook for personal finances.
'Increasing expectations of a pre-Christmas ECB rate increase and growing nervousness about the risk of further hikes through 2007 have made consumers more fearful about a possible squeeze on spending power in the year ahead,' commented Austin Hughes.
The survey also revealed that only 26% of consumers feel that now is a good time to buy big ticket items, the lowest level since December 2003. 'This hints that Christmas may not see a runaway spending spree,' comments Mr Hughes.
However, at the same time he is not expecting any dramatic weakening in spending. 'Consumers will continue to spend, but perhaps not with complete abandon. From a macro perspective, substantial increases in numbers living and working in Ireland mean retailers should still enjoy a good Christmas,' the economist adds.
