Consumer sentiment has plunged in the wake of the Ukraine conflict and increased inflation fears.
The latest KBC Bank Ireland index recorded the sharpest month-on-month drop in sentiment in two years and since the first wave of the pandemic. The survey fell to 67 in March from 77 in February on foot of the tragedy unfolding in Ukraine and the related economic and financial fallout for Ireland.
The 10-point drop was significant but less than the 34.7 point drop seen in April as Covid hit Ireland.
“Although the weakening in Irish consumer confidence in March 2022 is notably smaller than that seen two years ago, only 10 months out of 26 years have seen larger drops,” KBC Bank Ireland chief economist Austin Hughes said.
“ So, the March sentiment survey signals a marked change in thinking and suggests a material downgrade of the economic and financial outlook by Irish consumers,” he said.
The drop in sentiment here was mirrored in other countries.
Mr Hughes said the broad economic outlook and prospects for personal finances weakened the most whereas the outlook for jobs and spending was "more resilient".
He said the recent inflation surge marked a substantial change in Irish consumers financial circumstances. KBC Bank Ireland estimates the economy-wide hit from higher inflation could be over €4 billion or about €2,000 per household.
A special survey conducted alongside the standard monthly sentiment barometer found 85 per cent of consumers were planning to cut back on their planned spending in 2022 in the face of the current inflation surge. Nearly 50 per cent said the adjustment would be significant.
“While the difference between consumer thinking on the general economic outlook and the prospects for jobs might be described as one of tone, variations in the responses in relation to thinking on household finances were much more significant, and potentially signal a notable change in consumer thinking on their financial circumstances and the longer term outlook for inflation,” he said.
“Not surprisingly a torrent of bad news on living costs caused consumers to downgrade their assessment of their personal financial circumstances through the past 12 months, but the change was relatively modest compared to their thinking on the outlook for the next 12 months, which saw a marked worsening.”
