Bank of Ireland's Economic Pulse rose in February from the previous month as vaccine-related optimism offset lockdown fatigue and post-Brexit headaches.
The Economic Pulse showed a reading of 68.6 in February. The index, which combines the results of the Consumer and Business Pulses, was up seven points on last month but 17.8 lower than a year ago.
Bank of Ireland said that with the Government announcing that Level 5 restrictions would remain in place until at least March and implementation difficulties in respect of the new trading arrangements with the UK, households and firms were downbeat about their current situation.
But they sounded a more positive note on the outlook for the economy and commerce however, helped by the deployment of Covid-19 vaccines with more due to arrive.
The Consumer Pulse rose in February to reach 67.2. While this was 6.8 higher than last month's reading it was down 16.8 on a year ago.
While the extension of the public health measures saw households lower their assessment of the current economic situation this month, progress on the vaccination front lifted recovery hopes and the headline index.
46% now think the economy will get better over the coming year compared to 35% in January, while two in five expect unemployment to fall compared to three in ten last month.
After last month's drop, the Business Pulse was firmer in February. At 69, the index was 7.1 higher than in January but down 18 on a year ago, Bank of Ireland said.
Firms were downbeat about the recent trading period as the extension of Level 5 restrictions at home, and fresh measures across the Euro area, added to post-Brexit disruption.
But Bank of Ireland said that with some re-opening of the economy expected in the coming months as virus cases come down and inoculations go up, they were more upbeat about the outlook for business activity and hiring.
Bank of Ireland this month also examined the broader operating environment that businesses across the different regions face.
It found that while the results point to a high level of satisfaction among firms with basic infrastructure such as water, waste and energy; housing emerges as the priority area for investment in Dublin, with telecommunications infrastructure topping the list elsewhere.
Meanwhile, the Housing Pulse stood at 93.3 in February 2021, up 6.8 on January's reading and 8.6 higher than a year ago.
Bank of Ireland noted that the improvement in sentiment this month was broad based across the regions. Households in Dublin, the Rest of Leinster, Munster and Connacht/Ulster all upped their expectations for future house price increases, which took the national series to its highest level since the summer of 2019.
Dr Loretta O'Sullivan, Group Chief Economist for Bank of Ireland, said that both consumer and business sentiment were up on the month as households and firms looked towards the economic recovery now that the vaccine roll-out is underway.
Dr O'Sullivan said it will be a while before we get back to "normality" and it may be that some of the pandemic-induced changes to the way we live, work and shop persist, with longer lasting implications for the economy.
"More e-commerce and increased remote working will require further investment in telecommunications infrastructure for example," she said.
"Indeed, 36% of the firms surveyed this month identified telecommunications as the priority area for investment in their region, which is double the pre-Covid figure," she added.