Bank of Ireland Economic Pulse Falls in December

Consumer confidence eases back in December
Business sentiment mixed across the sectors
Four in ten worried about the cost of renting

The Bank of Ireland Economic Pulse stood at 88.9 in December 2017. The index, which combines the results of the Consumer and Business Pulses, was down 1.5 on November’s reading and 3.5 on this time last year. The mood was generally more muted this month and the research was conducted as the first phase of the Brexit negotiations – and the Irish Border issue in particular – reached a critical juncture.

Discussing the Economic Pulse, Dr. Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said: “After an action packed year of economic and political events at home and overseas, the Economic Pulse has ended 2017 on a softer note than it started it. 2017 was a good year for households on the whole though, with consumer confidence on a broadly upward trajectory. Business sentiment, however, has largely been moving in the opposite direction and weighing on overall sentiment in the process.”

Consumer Pulse
The Consumer Pulse eased back in December 2017, to 94.7 from 95.9 in November. Households downgraded their assessment of the economic situation this month and were also a little less positive about the buying climate (34% considered it a good time to purchase big ticket items such as furniture and electrical goods compared with 36% last month). The index was up 5.3 on this time last year though, and with the growing economy and ongoing job and income gains providing support, consumer confidence gained ground in 2017.

Dr. Loretta O’Sullivan commented; “The Consumer Pulse eased back this month, but looking at the year as a whole, its trajectory has been broadly upward. The economy is growing, jobs are being created, incomes are increasing and the unemployment rate has fallen further. All of these factors are supporting household confidence.”

Housing Pulse
The Housing Pulse was broadly unchanged in December 2017 at 117.0. House price expectations were in firm positive territory this month, as they have been all year. The data show that four in five survey respondents expect prices to rise in the next 12 months, with two in five anticipating gains in excess of 5%. Rising house prices are a concern for 38% and while the supply of housing is increasing, it remains well shy of demand and is unlikely to catch up for some time to come. This is putting pressure on rents as well as prices, 43% worried about the cost of renting with 72% expecting rents to increase over the coming year.

”Prices and rents have borne the brunt of the mismatch between supply and demand in the housing market this year and are set to do so again next year,” Dr. Loretta O’Sullivan said.

Business Pulse
The Business Pulse came in at 87.5 in December 2017, down 1.6 on last month’s reading and 5.7 on a year ago. It was a mixed picture this month, with the Industry and Retail Pulses (led by medium / larger firms) advancing, the Services Pulse retreating a little and the Construction Pulse retreating a lot (this comes after a strong November reading). All four sector Pulses ended the year below where they started it though. More generally, business sentiment softened in 2017 as, inter alia, the repercussions of the UK’s decision to leave the EU continued to play out. Progress has now been made on the first phase of the Brexit negotiations, which means the focus can turn to the new relationship between the UK and the EU and a transition period to it.

”While the Consumer Pulse has been on a broadly upward trajectory in 2017, the Business Pulse has been largely moving in the opposite direction, with December being the second lowest reading of the year. This month’s surveys took place in the midst of the Brexit negotiations and discussions around the Border question, which may have impacted the index.”

Regional Pulse
The Bank of Ireland Regional Pulses capture the views of consumers and businesses around the country. The December 2017 readings (3 month moving average basis) indicate that sentiment was up on the month in Connacht/Ulster, more or less flat in Dublin and the Rest of Leinster and down in Munster.

The consumer picture was softer this month with Dublin, the Rest of Leinster and Munster households downgrading their assessment of the current economic situation and Connacht/Ulster households more downbeat about their current financial situation. On the business front, near-term expectations for activity and hiring were in positive territory, albeit down on November in all regions bar Connacht/Ulster.As for housing, the widespread expectation is that prices and rents will increase in each of the four regions in the coming year.

2017 and the Global impact
Dr. Loretta O’Sullivan commented; “A lot has happened on the external front as well this year. We have had elections in the Netherlands, France and Germany, the Catalan situation in Spain while nearer at hand, Brexit has continued to make waves. Business sentiment in particular took a knock in the wake of the leave vote and a year and a half later, the Business Pulse is still off its pre-Brexit levels. The weak pound is a headwind for some firms, while for others uncertainty is the main worry.

The recent progress in the withdrawal negotiations is a positive though and will enable the talks to move on to phase two, where the focus will be squarely on the new relationship and a transition period to it. Getting to this point has not been easy however. There have been a number of bumps in the road and there will likely be more to come, which we will undoubtedly see play out in the Economic Pulse next year.

Sentiment also took a hit in the wake of the US election outcome, but with the Trump administration making limited headway in implementing its agenda over the past year, this looks to have waned in 2017. It will be a space worth watching though now that tax reform has gotten over the line in the US.

2017 has been eventful and after a year awash with economic and political events at home and overseas, the Economic Pulse has ended 2017 on a softer note than it started it. Looking ahead to 2018, the Economic Pulse will continue to track changes in sentiment among households and firms.”

Bank of Ireland Economic Pulse 2017 Round-Up Video https://youtu.be/NYWeeyiw6Ow