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Concern over Budget 2014 weakened consumer sentiment last month

KBC Bank said the most recent survey seems to reflect a “broad endorsement of domestic economic policy” even if there is a sense that it will hurt household finances.

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IRISH CONSUMER SENTIMENT weakened in November with the impact of Budget 2014 on household finances becoming clear.

The KBC Bank/ESRI Consumer Sentiment Index fell from a six year peak of 76.2 in October to 71.0 last month. KBC Bank Ireland’s chief economist Austin Hughes said the broad trend in confidence is still improving but a “fragile Irish economic recovery still faces the restraining influence of significant headwinds”.

So far this year, there have been six monthly increases in the survey and five monthly declines, a pattern which Hughes said “highlights the tentative nature of the turnaround as it is being felt by the average Irish consumer”.

Though the weakening in consumer sentiment in last month is attributed to a reassessment of the financial situation of households after the budget, the survey also reported a marginally positive change in views on the general outlook for the economy.

“This might suggest that consumers feel Budget 2014 moved the economy as a whole in the right direction,” Hughes commented.

So, this element of the survey seems to reflect a broad endorsement of domestic economic policy even if there is also a strong sense that such policy hurts household finances, at least in the short term.

However the economist pointed out that the weaker assessment of personal finances occurred in spite of greater optimism on jobs as well as the decision of the ECB to cut its key policy rate in early November.

“It could well be that the consequences of specific Budget 2014 announcements, together with a significant focus on the knock-on impact on health insurance costs as well as concerns about payment dates for property taxes for 2014, combined during the survey period to strengthen the view that household spending power will remain under pressure in the coming year,” he added.

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