Irish Consumer Sentiment weakened in February. The overall KBC Bank Ireland/ESRI Consumer Sentiment Index stood at 44.2 in February, compared to a figure of 49.6 in January. The corresponding figure for February 2008 was 63.5. The 3-month moving average decreased to 48 from the 48.2 recorded in January. The 3-month moving average stood at 64.4 in February 2008. 

The Consumer Sentiment Index comprises two sub-indices; an index of consumer expectation that focuses on how consumers view prospects over the next 12 months and an index of current economic conditions, focusing on the present situation.

The Index of Consumers Expectations is based on consumers’ perceptions of their future financial situation, the economic outlook and employment expectations. The index value for February stood at 23.1 compared with 25.3 in January.

Consumers’ perception of their current situation weakened in February. The value for this particular index was 75.6 in February, compared with 85.7 in January. This is primarily due to consumers becoming more negative about the current buying climate.

Commenting on the results David Duffy, ESRI, said: 

• “The results indicate a further weakening of consumer sentiment in February, following a small decline in January.”

• “The decline in consumer sentiment this month was anticipated at the time of the January release. In the past consumers have become more positive about purchasing major household items every January, reflecting, at least in part, the winter sales, followed by a more subdued figure in February. This pattern has continued, contributing to the further weakening in consumer sentiment.”

• The index of current economic conditions fell to 75.6 in February from 85.7 in January. The forward-looking sub-index, the expectations index, also declined, to 23.1 in February, from 25.3 in January.”

•  “Although the decline in sentiment reflects in part a post-sales effect, it is noticeable that the decline is also driven by consumers becoming more negative in their perception of their present and future financial situations.”

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

• “Roughly half of the weakening in February is due to a pull-back in spending intentions as New Year sales ended and Christmas credit card bills arrived.  This effect seems to have been particularly marked this year.  This might suggest some consumers are reining in spending after a final splurge over Christmas.  It could also be that a much poorer outlook for the Irish public finances is forcing consumers to contemplate an even greater degree of belt-tightening than they had expected.”

•  “This month was probably the poorest in terms of job news in the thirteen year history of the consumer sentiment survey.  In addition, the Taoiseach warned of a sharp drop in living standards and the global economic backdrop deteriorated considerably.  In these circumstances, the surprising aspect may be that sentiment did not weaken much further.”

Hughes added: "The past month was notable for a dramatic step-up in concerns about Ireland’s public finances.  On financial markets this was seen in higher interest rates, on government debt and more expensive credit default swaps.  For consumers, the poorer budget outlook translates into a painful squeeze on incomes.  We think this was the key driver of the more negative readings on spending power and the weaker buying climate.  The survey period saw the collapse of partnership talks on proposals for savings in public spending and the announcement of the public sector pension levy. 

The direct impact of these measures on public sector workers, the broader context of a sharp fall in living standards signalled by the Taoiseach and the persistence of sharp differences of opinion as to how severe this pain might be and how it should be distributed among the population at large likely combined to drain consumer confidence.  Indeed, viewed in this light, the remarkable aspect of the February results might not be that sentiment weakened but that it did not fall a great deal further."