Coronavirus pandemic led to a sharp fall in consumer confidence in the first quarter of 2020
Consumer confidence in Northern Ireland declined sharply in the first quarter of 2020 as the coronavirus pandemic had a negative impact on how people were feeling, according to analysis published today by Danske Bank.
The Danske Bank Northern Ireland Consumer Confidence Index fell to 119 in Q1 2020, down from 129 in the fourth quarter of last year and significantly below the reading of 139 posted in the first quarter of 2019. The Q1 2020 index reading was the lowest since 2013.
The survey was carried out during March and only partly captures the impact of the lockdown measures on sentiment levels.
When asked what factor had the largest negative impact on their confidence levels, 43 per cent of respondents pointed to global risks. This is considerably higher than in previous surveys and can be attributed to the coronavirus pandemic, given the extent to which it had already impacted countries across the globe at the time of the survey.
Thirty-six per cent of people surveyed expected their finances to worsen over the next year, compared with 20 per cent who expected their financial position to improve, again likely due to unease about the long-term impacts of the pandemic.
Total consumer spending is expected to be significantly lower than usual during the lockdown. Household expenditure on the purchase of cars, clothing and footwear, furniture and in restaurants is all expected to be lower. Spending on holidays is also likely to fall sharply given international travel has been reduced by the pandemic.
However, household spending may temporarily increase in some categories during the lockdown, such as food and drink, take away meals, cleaning materials, toiletries and soap. Spending on goods and services aimed at providing entertainment while staying at home, such as TV subscriptions, books and games is also expected to rise temporarily.
Commenting on the latest figures, Danske Bank Chief Economist Conor Lambe said:
“The coronavirus pandemic was the main factor that contributed to the fall in confidence levels in the first quarter of the year, with notable declines in sentiment relating to how people felt about their future financial positions, job security and spending on expensive items.
“Given the measures put in place in response to the virus, households are likely to spend their money differently to how they normally would. At an aggregate level, the areas in which spending might temporarily increase are not expected to be anywhere near enough to offset the falls in expenditure on other goods and services. As such, we are projecting that total consumer spending will decline sharply in Northern Ireland as a result of the pandemic.
“Looking forward, confidence levels are one of the factors that will influence the pace of the recovery in consumer spending once the lockdown measures begin to be gradually lifted.”
The survey also showed Brexit remains an area of concern with 10 per cent of people saying that the status of the Brexit negotiations had adversely impacted them, and a further 11 per cent of people stating that the UK Government’s longer-term Brexit objectives was the factor that had the largest negative impact on sentiment.
Regarding the factors that positively impacted people, 23 per cent said the return of the Stormont Executive had made them feel more confident.
Current financial position compared with last year
The part of the index focused on how consumers felt about their current financial position relative to a year ago increased over the quarter but fell over the year. However, the rise over the quarter is most likely due to the survey taking place during March and only partly reflecting the effects of the lockdown.
Twenty-five per cent of people felt their financial position had improved over the past year, but 27 per cent felt it had deteriorated.
Expectations for finances over the next twelve months
The index reading related to consumers’ expectations of how their financial position will change over the next year decreased.
Expectations around job security
There was a fall in the component of the index which examines job security. Ten per cent of people expected to become more secure in their job, but 20 per cent expected their job security to worsen.
Expectations around spending on high value items
The part of the index that indicates the amount consumers expect to spend on high-value items over the next twelve months fell in Q1 2020. While 17 per cent of consumers expected to spend more on expensive items, 42 per cent expected to spend less.
The index reading related to consumers’ saving expectations was unchanged compared with the previous quarter but increased over the year. Nineteen per cent of people expected to save more this year than they did last year, but 31 per cent thought they wouldn’t be able to save as much over the year ahead.
Regional confidence levels
Compared with the final quarter of 2019, consumer confidence fell in the first quarter of 2020 in Belfast City and the South region. Confidence levels were unchanged in the West region and picked up, albeit from a low base, in the North of the country.