Con­sumers still sav­ing as Brexit over­shad­ows fall­ing sen­ti­ment

Irish Independent - Business Week - - FRONT PAGE - David Chance

HOUSE­HOLDS con­tin­ued to de­posit more money with banks than they bor­rowed, ac­cord­ing to the lat­est data from the Cen­tral Bank of Ire­land.

The fig­ures in­di­cate that the scars of the 2008 fi­nan­cial cri­sis have not yet healed, de­spite ul­tra-low in­ter­est rates, and raise con­cerns over how far the eco­nomic re­cov­ery can run.

A sep­a­rate re­port from KBC Bank showed that con­sumer sen­ti­ment in the State weak­ened for the third month in a row in Oc­to­ber due to worries about the global econ­omy and Brexit, even though the over­all sen­ti­ment in­di­ca­tor was still in pos­i­tive ter­ri­tory.

Ire­land has re­cov­ered strongly from the 2008 fi­nan­cial cri­sis and is now grow­ing more rapidly than any other coun­try in the Euro­pean Union, buoyed by for­eign in­vest­ment and a re­cent rise in do­mes­tic de­mand that is be­ing fed by a higher num­ber of peo­ple in work and ris­ing wages.

In its re­port, the Cen­tral Bank said that, on an an­nual ba­sis, net mort­gage lend­ing rose by 1pc to €733m, the 11th con­sec­u­tive month of gains. Nonethe­less with de­posits in­creas­ing in net terms by €633m in Septem­ber to stand at an all-time high of €103bn, banks held €11.3bn more in house­hold de­posits than loans.

KBC’s Con­sumer Sen­ti­ment In­dex fell to 93.5 with its de­cline since July the largest three-month de­cline since au­tumn 2010. It is down from 104.8 a year ago and now stands at the low­est level since De­cem­ber 2014.

The down­turn is in con­trast to ris­ing con­fi­dence in Europe and the US.

“This scale of drop sug­gests a ma­jor mood change on the part of Ir­ish con­sumers of late. From cir­cum­stances in which they were sens­ing a clear if un­even re­cov­ery, it seems that Ir­ish con­sumers are now en­tirely fo­cused on the risk of a sharp and painful re­ver­sal,” KBC econ­o­mist Austin Hughes said in the re­port.

The de­cline came even as un­em­ploy­ment in Ire­land edged lower in Oc­to­ber

Flag­ging en­thu­si­asm:

Euro­pean Union and Bri­tish flags fly in front of the UK Houses of Par­lia­ment dur­ing a re­cent anti-Brexit march – Ir­ish fears around Brexit have been re­flected in the lat­est con­sumer sen­ti­ment in­dex to 5.3pc, clos­ing in on a level where the State is at “full em­ploy­ment” and where wage pres­sures should start to build more strongly.

In a bid to pre­vent a re­peat of the over­lend­ing that fu­elled the boom and bust, the Cen­tral Bank has put in place loan-to­value and loan-to-in­come re­straints, so as to cool the hous­ing mar­ket, stop con­sumers from get­ting too far into debt and to dis­cour­age risky lend­ing by banks.

Ev­i­dence from a re­search re­port by two of the bank’s econ­o­mists showed that since 2010 bor­row­ers across the euro area were now older and have higher in­come than be­fore the cri­sis.

In “boom and bust” Ire­land, they noted, tighter lend­ing stan­dards, a drop in liv­ing stan­dards and later par­tic­i­pa­tion in the work­force was driv­ing some of the move to older bor­row­ers.

The av­er­age age of pur­chasers here at the time a house is bought has risen to 37 years from 32 years be­tween 2004-2008 and the per­cent­age of bor­row­ers over the age of 36 has risen to more than half from around a third.

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