Bank of Ireland Economic Pulse shows steady start to 2017


Bank of Ireland Economic Pulse shows steady start to 2017

•    Small rise in the Economic Pulse in January
•    One in four is likely to buy a car in the next 12 months
•    Two in five expect a pay increase over the coming year
•    Business sentiment down marginally

Monday 30th January 2017: The Bank of Ireland Economic Pulse stood at 93.1 in January 2017. The index, which combines the results of the Consumer and Business Pulses, was up 0.7 on December but 6.9 below last January’s reading.
Consumer confidence strengthened this month, as households upgraded their assessment of the economy and their personal finances. With consumers focussed on the post-Christmas sales, the buying climate also experienced its usual seasonal bounce.
On the business front, confidence was broadly unchanged on the month though sentiment was mixed across the sectors, with the Retail and Construction Pulses up and the Industry and Services Pulses down. The unsettled external landscape is a worry for many firms and while it is still early days, developments since the January surveys were carried out (the UK Prime Minister’s ‘hard Brexit’ rhetoric and the protectionist policy actions of President Trump) are unlikely to provide much comfort in this respect.

Discussing the Economic Pulse, Dr. Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said; “It was a steady start to the new year for the Economic Pulse, with sentiment among firms little changed on the month and households shaking off the January blues.”
Consumer Pulse
The Consumer Pulse rose for a second consecutive month in January, to 94.4. While some of the improvement this month can be attributed to seasonal effects, the positive flow of economic data around the turn of the year also played a part.

Factors such as the unemployment rate falling to an eight year low in December, the IDA securing a record number of FDI investments during 2016 and tax receipts coming in ahead of target for the year helped reassured households around the country. With the traditional post-Christmas sales underway, buying sentiment also picked up in the month with 44% of consumers considering it a good time to purchase big ticket items such as furniture and electrical goods, compared with 35% last month.

Dr. Loretta O’Sullivan added: “Another big ticket item that households are purchasing is cars. More than 142,000 new private cars were licensed for the first time last year, with every county seeing an increase. The January survey results indicate that one in four is likely to buy a car in the next 12 months. This bodes well for new sales in 2017, though the continued weakness of the pound may see further used imports from the UK.”

Housing Pulse
The Housing Pulse stood at 111.5 in January, up 2.8 on December’s reading and 11.5 on this time last year. House prices rose in 2016 and expectations are for further growth this year. Supply – although gathering pace – is still shy of what is needed. Meanwhile policy changes including the new help-to-buy scheme for first time buyers and the loosening of the Central Bank’s loan-to-value restrictions for this cohort will support demand.

With prices on the up, almost half (46%) consider it a good time to sell – this rises to 56% for Dublin – and 58% think it is a good time to buy. This could be attributed to personal circumstances and also because of the increase in rental prices. Two in three think it is cheaper to buy than rent in their area and one in four plans to spend a large sum of money on home improvements or renovations in the next 12 months.

Commenting on the findings, Dr. Loretta O’Sullivan said, “Three in four survey respondents think house prices will rise over the coming 12 months, with one in three expecting increases in excess of 5%. Pressures in the market are also leading to higher rents and when they compare the typical monthly rent with the typical monthly mortgage repayment for a similar property, many people are finding that it is cheaper to buy in their area than it is to rent.”

Business Pulse
At 92.8, the Business Pulse was broadly unchanged this month. This follows a sharp increase in business sentiment in December. The Retail and Construction Pulses were up in January, whereas the Industry and Services Pulses were softer. While Brexit and the Trump administration’s policies were at the forefront of concerns, the number of firms expecting business activity and hiring to increase in the near-term remains greater than the number expecting a decrease.

The unsettled external environment may be starting to temper growth ambitions a little however – while two in three firms plan on expanding in the next 1 to 3 years, this is down from three in four last January. Given its domestic focus the construction sector seems to be bucking this trend.

On the wage front, 37% of firms are planning on increasing basic pay in the next 12 months, while two in five workers are expecting a pay rise. Dr. Loretta O’Sullivan commented: “Recent months have seen the issue of public sector pay back on the agenda. Pay is also relevant for private sector firms, as it impacts competitiveness and is a factor within their control. Other factors such as adverse exchange rate movements are not. Against the backdrop of a very uncertain external environment, an eye to the cost base and a focus on non-price factors impacting competitiveness such as R&D and quality improvements will be important in the period ahead.”

Regional Pulse
The Bank of Ireland Regional Pulses bring together the views of consumers and firms in different parts of the country. The results for January 2017 (3 month moving average basis) show that sentiment increased in all regions apart from Dublin.

•    Dublin Pulse = 91.3 -3.0 points on the previous survey;
•    Rest of Leinster = 91.9 +0.7 points;
•    Munster = 90.1 +1.5 points;
•    Connacht/Ulster = 86.7 +1.3 points.

Households across the country upgraded their assessment of their own financial situation over the past 12 months and with the post-Christmas sales in full swing, the buying climate in each region was firmer this month. Near term prospects for business activity and jobs were also in positive territory in January, though hiring intentions in Dublin were a little softer compared with last month. The capital continued to lead the way in terms of house price expectations however, with four in five anticipating increases over the coming 12 months (this compares with three in four nationally).

The Bank of Ireland Economic Pulse survey is conducted in conjunction with the European Commission, with the data gathered by the bank feeding into the EU Commission’s Joint Harmonised EU Programme of Business and Consumer Surveys, a Europe-wide sentiment study running since the 1960s. The Economic Pulse surveys are conducted by Ipsos MRBI on behalf of Bank of Ireland with 1,000 households and over 2,000 businesses on a range of topics including the economy, their financial situation, spending plans, house price expectations and business activity.