A new survey shows that consumer confidence took a big knock this month as households reacted to the escalation of the Russian-Ukraine conflict and the potential fallout for the economy and inflation.
Companies were also affected by the latest uncertainty, with three in five saying that they are finding it difficult to predict the future development of their business situation at present.
Bank of Ireland's Economic Pulse came in at 84.4 in March. The index, which combines the results of the consumer and business Pulses, was down 3.8 on last month but 10.7 higher than a year ago.
Bank of Ireland said its Consumer Pulse stood at 56.7 in March, 14.5 lower than last month's reading and 13.1 lower than a year ago. It also marked the second biggest monthly drop.
The bank said that heightened uncertainty saw households take a more downbeat view of economic and employment prospects for the coming year this month.
Soaring energy prices in the wake of Russia’s invasion of Ukraine also added to cost of living woes.
Nine out of ten households now think that consumer prices will rise in the next 12 months - up from 82% in February - which contributed to the gloomier assessment of their own finances in the March survey.
The Business Pulse came in at 91.3 in March, down 1.1 on last month but 16.7 higher than a year ago.
Bank of Ireland said the picture for businesses was mixed this month. The Services Pulse rose as the post-restrictions rebound continued, but the Retail Pulse slipped a little and the Industry and Construction Pulses fell quite a bit against the backdrop of the Russian-Ukraine war.
The war is likely to temper demand and exacerbate existing supply-side issues and cost pressures, with firms in all sectors more circumspect about the three-month outlook for business activity in March.
83% of companies also reported that their non-labour input costs had increased in recent months, up from 79% in February.
But 35% of businesses still said that they expect to spend more on investment this year compared with last year.
Meanwhile, the Housing Pulse lost ground in March 2022, coming in at 116.1 - down 6.8 on February but 18.7 higher than a year ago.
Bank of Ireland said that households in all regions pared back their expectations for future house price gains due to the unsettled mood, while expectations for rent increases also dipped across the board.
However four in five households still think house prices will go up over the next year and three in four think rents will rise as the demand for accommodation remains in excess of the number of properties available to buy and let.
Dr Loretta O'Sullivan, Group Chief Economist for Bank of Ireland, said that economic sentiment was down this month amid the horror of war in Europe.
"Against this backdrop, the Consumer Pulse posted its second biggest monthly drop ever, with the Business Pulse also slipping in March," Dr O'Sullivan said.
"The uncertain geopolitical situation is a headwind for GDP growth and living costs in Ireland. Much will depend on the duration of the conflict and on the actions of policymakers, factors which will also shape sentiment among households and firms in the period ahead," she added.