Recovery in spending will be swift, says report
Goodbody study also predicts 4pc rise in house prices this year
A RAPID rebound in consumer spending is expected once the latest lockdown restrictions ease, according to a new report from Goodbody Stockbrokers. It also predicts a 4pc rise in house prices this year.
The report, released today, suggests domestic demand will increase by 5pc in 2021 and 3.5pc next year.
While the current lockdown will lead to another fall in demand in the first three months of this year, the vaccine roll-out increases the prospects of a swift recovery in spending through the rest of the year and into 2022, according to the report.
Irish households experienced the fastest growth in disposable incomes in the EU last year, according to the report, with a record €13bn increase in bank deposits over the past 12 months.
Increased consumer spending in December, when the economy partially reopened, suggesed there is “significant pent-up consumer demand”.
“While there has been a significant shift in spending behaviour due to the pandemic, most of this is likely to be unwound when restrictions are removed,” the report said.
“This is vitally important for the rehabilitation of the leisure and hospitality sector in particular,” it added.
The initial shock of the Covid-19 pandemic and subsequent lockdown caused consumers to rein in spending aggressively in March and April of last year, with spending falling by over 40pc from its pre-pandemic levels.
The report also looked at the housing market, which has been “surprisingly resilient”.
House prices have remained firm and demand has bounced back strongly.
Goodbody’s Building Energy Rating (BER) Tracker estimates that 19,500 homes were completed last year, down 8pc on the previous year.
“This was better than our earlier expectations, but the rate of housing starts has fallen sharply, pointing to flatter completions trends in 2021,” Dermot O’Leary, chief economist at Goodbody and author of the report, said.
The fall in housing output was due to both caution on behalf of builders in commencing new building works, as well as reduced access to funding, both from banks and non-bank lenders.
According to Mr O’Leary,
there will be an annual demand for housing output in the mid-30,000s over the next 10 years.
However, Goodbody expects just 21,000 newly built units to come on the market this year. “With the supply of properties for sale at a record low and robust demand, we now expect prices to grow this year by 4pc, a significant change from our previous estimate of -2pc,” he said.
Elsewhere, the report finds that the Irish economy has overall shown strong resilience in the face of the pandemic, and likely recorded the fastest GDP growth in the world in 2020. While it says GDP is a “substandard” measure of economy activity here, it adds that the performance of the large multinational sector cannot be ignored.
Strong growth in the pharmaceutical and technology sectors helped play “an important role in shielding us from the worst impacts on the labour market, as well as protecting the public finances in a period of exceptional growth in public spending,” the report states.