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Consumer sentiment declined in August after three months of gains in a row, according to the latest monthly indicator of economic sentiment from KBC Bank Ireland.

The KBC Bank Ireland consumer sentiment index fell to 58.9 in August from 62.6 in July.

It was the first decline since a collapse in April that took the index to its lowest level since October 2008.

The monthly tracker is compiled from a survey of around 1,000 consumers and is conducted by Core Research.

“The pull-back in consumer sentiment in August is not entirely surprising,” the report author’s Austin Hughes, chief economist of KBC Bank Ireland, said.

“It reflects mixed news about the likely strength and speed of a rebound in economic activity and employment in Ireland and elsewhere from the sharp decline seen in the second quarter as well as renewed concerns about the trajectory of the coronavirus.”

He suggested that the August data may mark the beginning of a period of potentially volatile sentiment readings.

“Thinking, both in regard to the economy and the pandemic, may be prone to marked swings between optimism and pessimism,” Mr Hughes added.

However, he said it was important to put the 3.7 point drop in August in context of the 34.7 point drop in April.

The decrease in sentiment in August, he pointed out, was not unusual in terms of the normal monthly fluctuations in sentiment.

“As such, the August data shouldn’t be seen as signalling any major mood swing on the part of Irish consumers,” he added.

He said the latest reading suggested that any recovery in consumer circumstances was likely to be uneven and tentative.

A key driver of the pullback in sentiment was undoubtedly the resurgence of coronavirus concerns highlighted by the postponement of phase 4 of the easing of restrictions nationwide and the imposition of local lockdowns in Kildare, Laois and Offaly.

The sharpest decline in sentiment in August was in relation to the outlook for employment.

The broader outlook for the Irish economy was also downgraded.

Those parts of the consumer sentiment survey which focused on household finances were mixed in August.

There was a marginal improvement in the assessment of financial conditions over the past 12 months, possibly supported by the Government’s announcement of the extension of its wage support scheme.

However, consumers were more cautious in relation to their future financial circumstances and this likely contributed to a clear downgrading of spending plans.

Speaking on Morning Ireland, Austin Hughes interpreted the survey results as showing that consumers were nervous, even if some were were left no worse off by the pandemic and the associated economic restrictions directly.

“Spending has held up better than sentiment, mainly because of the income supports and the fact that there are sectors that have been entirely unaffected,” he said. 

“The key issue is whether we see a generalised weakening in the economy because of renewed lockdowns affecting economic activity. The survey is warning that consumers are nervous even if some were untouched directly. The risk is that it becomes a more generalised threat to the economy,” the economist added.

He warned that as the virus evolves, there was a necessity for the policy response to evolve too.

“We can’t just think of the July stimulus as the only response. We’re going to need other measures in the budget that prevent what’s been a contained economic impact so far becoming a more disastrous impact into next year.”

Mr Hughes said the stimulus needed to be more targeted at a micro level, specifically those companies that have been most severely impacted.

“What’s needed are measures that allow us live economically with the virus for 6 to 12 months and ensure that worries don’t spill over into something more apocalyptic,” he concluded.

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