Consumer spending 'may fall 10%' this year

Consumer spending levels are likely to fall by between 5% and 10% this year, rather than increasing by 2%-3% as previously expected, one economist has warned.
Consumer spending 'may fall 10%' this year
Economists expect that the recovery time needed from the Covid-19 outbreak will be longer than the post-global recession turnaround

Consumer spending levels are likely to fall by between 5% and 10% this year, rather than increasing by 2%-3% as previously expected, one economist has warned.

The prediction comes as the spread of Covid-19 closes shops and is beginning to eat into consumer confidence.

“We’re likely to see a massive fall-off in retail sales in the coming months, based on the hit to the labour market and people’s incomes,” said economist Alan McQuaid.

“Grocery and essential goods sales might do okay, but overall people will hold onto their money instead of spending it.

"The cautious consumer approach is back in play as we don’t have an end game on this,” he said.

“Consumption is the biggest part of GDP, but while investment in construction and government spending may hold up, the biggest falls will be seen in exports and personal spending,” Mr McQuaid said.

His outlook follows new CSO data showing a 4.3% month-on-month fall in retail sales volume in February. When measured on a year-on-year basis the volume of spending was down by 0.3%.

In value terms, February saw a monthly 4.3% fall and a yearly 0.4% drop.

The latest CSO figures pre-date this month’s Covid-19-driven shutdown of pubs and, more recently, non-essential shops.

Mr McQuaid said while the Irish economy is likely to eventually bounce back from the coronavirus crisis, it is entirely probable that the recovery time will take longer than the post-global recession turnaround.

Earlier this week, economic think-tank the Economic and Social Research Institute (ESRI) laid bare the potential shock in store for the Irish economy due to the pandemic crisis.

It warned that unemployment – up until recently under 5% - is likely to jump to as high as 18% by early summer as the country plunges into a deep recession, with GDP set to fall by 7%.

The ESRI said that it could take until the end of 2021 for Ireland’s unemployment rate to return to the 4.8% levels measured only last month – stressing this outcome would be in “a benign scenario”.

If no recovery is evident in the second half of the year, then the negative impact will be worse.

“This speed of change in the fortunes of the domestic and international labour markets is unprecedented,” the ESRI said this week. “The swiftness of the economic deterioration is unprecedented in modern times and, in many respects, exceeds that of the financial crisis,” it said.

The ESRI has forecast the average Irish weekly household spend will fall from €837 to €631 for each week over the three months of lockdown measures.

Elsewhere, US consumer sentiment dropped to a near three-and-a-half year low in March, as the coronavirus epidemic upended life for Americans, and consumer spending was sluggish in February, strengthening economists’ expectations of a deep recession.

Meanwhile, European shares fell, following a three-day rally, after EU politicians failed to agree on a coronavirus rescue package and British Prime Minister Boris Johnson announced he had been infected.

Despite, the 3% fall in European stocks, they still had their best week since 2011.

Oil stocks fell as Brent crude fell to under $28 per barrel, with US crude as low as $21.

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