The overall KBC Ireland/ESRI Irish Consumer Sentiment Index improved in November. The Consumer Sentiment Index was 44.8 in November 2008, compared with 42.0 in October 2008.

 Commenting on the results David Duffy, ESRI, said:

•  “The consumer sentiment index recorded a small increase in November. However, the underlying message from the analysis is that consumers remain cautious in the present circumstances.”

•  “Current economic uncertainty is being reflected in a shift in consumer perceptions. A substantial part of the improvement in sentiment is due to a move from a negative to a neutral outlook by respondents, suggesting a more uncertain and cautious outlook by consumers.”

•  Although the overall sentiment index shows a small improvement, consumers remain negative about the outlook for the economy and the labour market. Both of these components continued to decline in November.”

 In addition, Austin Hughes, KBC Bank Ireland, noted:

•  “Although the improvement in sentiment in November is marginal, nonetheless it is a welcome positive surprise.  It suggest that although consumers are down they are not completely out.  While Irish consumers are worried about job loss and a weakening economy they have also noticed that a dramatic decline in energy costs and interest rates is now underway.  The possibility of falling consumer prices in 2009 means household spending power will stretch further reversing the painful impact of a surging cost of living in recent years.”

•   “It is scarcely surprising that the media and economists are largely focussed on the global financial crisis and it’s spill-over to activity and employment.  However, household sentiment and spending has been badly hurt by higher fuel bills and monthly loan repayments in recent years.  To most households these increases have been the major negative ‘shock’ to living standards.  As a result, the prospect of a dramatic turnaround in oil prices and interest rates is seen cushioning the blow from a weaker economy in 2009.”

The size of the sample wasn't reported.

Austin Hughes adds: The November consumer survey results highlight the possibility that we might underestimate the cushion to households and the broader Irish economy that a sharp drop in energy and borrowing costs will provide.  Falling prices will make household budgets stretch further in much the same way that sharply rising prices dented living standards and sentiment of late.  Indeed, there is a good chance that Irish consumer prices could fall in 2009 because of weaker commodity prices, substantially lower interest rates and the impact of more intense competition among beleaguered businesses. This deflation, which would be the first fall in Irish consumer prices in any year since 1946, should help support purchasing power and represents a dramatic turnaround from  the painful squeeze suffered in the past couple of years. 

In the light of the widespread negative commentary on the recent budget, it may seem very surprising that Irish consumers were less downbeat in November.  We think this is largely explained by the prospective scale of the turnaround in oil prices and interest rates that should improve the balance between household income and spending each month.  It should also be noted that most controversy regarding the recent budget has focussed either on the Irish Government’s macroeconomic management or particularly budgetary measures relating to medical cards and school class sizes.  The November survey results clearly point towards serious concerns about the broad economic outlook that may reflect misgivings about the Government’s economic stewardship.  Beyond this, adjustments conceded on medical card access for the aged should limit the direct hit from this measure to the broad population of Irish consumers. 

It should also be recognised that the harmful impact of increased class sizes wouldn’t be captured readily by the questions that form the sentiment survey.  It could even be speculated that these controversies might have masked the major blow to household finances from increased taxation.  For this reason, we think there is some risk of a significant adverse impact on consumer sentiment when the size and range of tax increases are felt in early 2009.  Arguably, emerging evidence that many other countries are adopting a far less harsh budget stance will aggravate this ‘feel bad’ effect in the months ahead.