Consumers’ attitudes normalising to pre-pandemic levels – but second wave of Covid-19 is biggest concern

Bank of Ireland Savings & Investment Index shows consumers’ attitudes normalising to pre-pandemic levels – but second wave of Covid-19 is biggest concern.

  • Savings and Investment Index drops in Q3 2020 as sentiment weakens
  • 46% saving regularly in Q3 2020, down from 51% in Q2 2020 reflecting the beginnings of normalisation
  • 88% very or fairly concerned about second wave of Covid

As the lockdown continues to ease, Bank of Ireland’s Savings and Investment Index demonstrates the changing attitudes of Irish consumers as the economy begins to re-open.

Firstly, consumers have begun to save less and spend more. Compared to the period of full blown lockdown when savings increased significantly, less people are saving ‘by default’ and a series of factors are influencing a normalisation. As the economy re-opens there is more opportunity to spend and less surplus income from measures such as Covid-19 payment schemes and mortgage breaks leading to a return to more normalised patterns of expenditure.

Secondly, when it comes to investing, consumers are continuing to invest but their attitude to investing is back to pre-Covid levels. Interestingly this resetting of attitudes has occurred during a very profitable period for investors, with global equity markets now effectively back to January 1 levels. At the same time, consumer confidence has fallen back lately and the survey results illustrate a heightened concern about the impact of a second wave of Covid-19 on the health and well-being of people’s families.

There has also been a normalisation in our optimism about retirement – Q2 levels had jumped dramatically during the lockdown but it too has returned to pre-Covid-19 levels.

Overall index falls

The overall Bank of Ireland Savings and Investment Index, which gauges attitudes to savings and investing, decreased in Q3 by 4% on the previous quarter, falling from 100 to 96. There was a drop in both savings and investment sentiment, with the Savings Index falling to 101 in Q3 from 106 in Q2 and the Investment index falling from 94 to 90.

Kevin Quinn, Chief Investment Strategist at Bank of Ireland Investment Markets commented:

“As the country has begun the process of re-opening, we’ve seen a very understandable shift in attitudes to both saving and investing. Following the resilience shown in Q2, our survey data has reverted back towards pre-Covid levels. Attitudes to savings have weakened as might be expected as consumers began to spend again and the effect of income supports begins to fade. Equally we’ve seen attitudes to investing weaken somewhat despite some very impressive gains in particular in equity markets over the past three months, with many hitting new highs. The main explanation for this rests in the most significant concern being voiced by respondents – worries about the impact of a second wave of Covid-19.”

Savings Index

The Savings Index fell from 106 to 101 in the third quarter of the year, marginally higher than the pre-Covid February result of 99. The drop in saving sentiment was very understandable with the re-opening of the economy and is mostly driven by weaker attitudes to saving in the period. The percentage of people saving fell to 46% in Q3, from 51% in Q2. There was a drop in those who think it’s a good or very good time to save (down from 55% in Q2 to 49% in Q3) but still well ahead of Q1 levels (38%).

According to Kevin Quinn, “Given the emergence from lockdown, we’d expect to see an increase in consumer spending and a consequent reduction in savings. Constrained spending habits in the lockdown period have begun to shift back to pre-Covid levels but there remains scope for this to increase quite a bit more. Subdued consumer confidence and concerns about a second wave however will act as a dampener on the pace of normalisation.”

Investment Index

The Investment Index dropped from 94 in Q2 to 90 in Q3, the same level it was pre Covid-19 in Q1.

In what has been a very strong period for investors with equity markets recovering strongly on foot of massive monetary and fiscal interventions, most investors will have experienced a recovery back to pre-Covid levels.

The divergence in opinions remains quite pronounced, albeit slightly less than in Q2. Undoubtedly some grasped the opportunity that the crisis conditions presented and if they matched global equity markets, will have seen 39% gains from the lows in late March. Equally many investors stayed on the sidelines as volatility levels remained elevated throughout the summer months.

28% said they saw now as a good time to invest, which is down from 32% in Q2 but up on the pre-Covid level of 23%. In contrast, 43% see it as a bad time to invest, down from the 47% that expressed that view in Q2.

When asked about how they view things in 6 months’ time, investors are somewhat more upbeat with 31% seeing it as a good time to invest, while just 33% see it as a bad time to invest.

Kevin Quinn commented, “We’ve seen a very strong recovery in equity markets since the lows in March this year. Perhaps as a consequence there are very divided opinions both amongst retail and professional investors about whether now is a good time to invest. Pessimists will point to the resurgence in Covid-19 and lofty valuation levels, whereas optimists will point to further central bank supports, and the capacity for this recovery to broaden very considerably”.

Retirement Optimism Index

The most striking finding from the last survey in Q2 was the significant increase in our Retirement Optimism Index which had risen 12% rise in Q2. That has now reversed with a 8% drop back to levels seen pre Covid-19.

There was a drop in the number of people who felt they would be comfortable in retirement from 45% in Q2 to 36% in Q3 but only a modest dis-improvement in the numbers who feel retirement will be difficult (up to 26% from 23% in Q2)

The most striking finding from the latest survey is the concern that people are expressing about the impact of a second wave of Covid-19. 88% indicated they were either ‘very concerned’ or ‘concerned’ about this, with 72% concerned about family health.

Kevin Quinn commented, “There is little doubt that there are quite pronounced concerns emerging in the community about the impact a second wave of Covid-19 might have. Given we have seen county level shutdowns and we’re seeing these kind of reversals across neighbouring countries as well, it is a very understandable response. For savers, it may serve to slow the pace of normalising spending and savings patterns. For investors, while this may be influencing investment decision making, we see it as less influential on investment outcomes when balanced against the scale of central bank support and emerging news on vaccines.”