Sharp fall in consumer sentiment in May

Monday 09 June 2014 14.41
KBC Bank Ireland/ESRI consumer sentiment index fell to 79.4 in May from 87.2 in April
KBC Bank Ireland/ESRI consumer sentiment index fell to 79.4 in May from 87.2 in April

May saw a sharp decline in consumer sentiment as the run-up to the local and European elections prompted a re-assessment of consumer's current circumstances.

The KBC Bank Ireland/ESRI consumer sentiment index fell to 79.4 in May from 87.2 in April - its lowest reading since November 2013.

KBC said that while the fall in confidence was not entirely surprising, the scale of the decline was.

The drop was the 14th largest monthly fall in the 18 year history of the index, it noted.

The bank said that while technical factors may have played some part in the fall, it believes the focus on the difficulties still facing the Irish economy in the lead-up to the May elections may have led people to downgrade their assessment of their financial situation.

Continuing debate about the introduction of household water charges and access to medical cards may also have contributed, the bank added.

"As such, the weakness of the May survey is entirely consistent with the poor performance of Government parties in the recent elections," commented KBC Bank Ireland's chief economist Austin Hughes.

All five components of the index declined in May, the first time this has happened in 16 months. The largest falls were in those elements of the survey relating to household finances. 

The index shows that the number of consumers that expect their personal finances to worsen in the next 12 months rose from 33% of respondents to 46%, while the number expecting an improvement was steady at 17%. 

Mr Hughes said that he was not surprised by the fall in sentiment last month, adding that the economy recovery is not a straight line recovery that can be expected to progressively improve each and every month.

He said it may take a couple of months' data to establish whether the May reading marks a lasting change in consumer thinking that could weight on sentiment - and perhaps consumer spending - for the rest of the year.