The Bank of Ireland Economic Pulse stood at 85.8 in November 2016, its lowest reading this year. The index, which combines the results of the Consumer and Business Pulses, was down 8.6 on October.
The data show a broad based softening in sentiment this month, with both the Consumer and Business Pulses losing ground. Households were more downbeat about the economy and their own financial prospects in November, while firms in all sectors pared back their expectations for near-term business activity. This month’s Pulse also examined firms’ investment intentions, with the results showing that two in five expect to increase their spending on investment in 2017 compared to this year, with one in two planning to spend the same amount.
Discussing the Economic Pulse, Dr. Loretta O’Sullivan, Group Chief Economist, Bank of Ireland said; “following closely after the UK’s decision to leave the EU, the outcome of the US election and industrial unrest at home look to have unsettled consumers and firms in November, with the Economic Pulse taking a hit.”
The Business Pulse, which surveyed 2,000 businesses, stood at 85.2 in November, down 9.7 on last month and at a 2016 low. Sentiment was softer across the board, with the outcome of the US election adding to the air of uncertainty post the Brexit vote and contributing to a general paring back of expectations for business activity over the next three months. All four Sector Pulses fell this month, with retail particularly hard hit and construction also down from last month’s high. The Retail Pulse did see a strong gain in October though, while seasonal factors may be at play for the building industry as we head into winter.
“External headwinds were to the fore this month, dampening business sentiment and weighing on investment plans. But with customer demand and other factors providing support, two in five expect to increase their investment spend in 2017,” according to Dr. Loretta O’Sullivan.
This month’s Pulse also examined firms’ investment intentions, with the results showing that around half of all businesses intend to focus on replacing and maintaining plant and equipment. Firms in industry are also looking to extend and streamline production capacity, while service firms and retailers are planning to invest in new premises and equipment as well as ICT.
A range of factors were mentioned as having an impact on businesses’ investment plans for next year. Demand from customers, financial and technical conditions were generally seen as a positive, whereas the uncertainty the Brexit vote and the outcome of the US election has generated was a negative for many.
Commenting on the investment findings, Dr. Loretta O’Sullivan said: “The unsettled external picture is a headwind for many firms, but with domestic activity expanding and other factors providing support, some firms are seeing opportunities as well and this is reflected in their investment plans. As noted last month, Ireland is vulnerable to adverse movements in exchange rates. Against the background of a weak and volatile pound, an eye to the cost base and a focus on non-price factors impacting competiveness such as R&D will be important in the period ahead. It is encouraging to see that 35% of the firms in industry that carry out R&D expect their spend in 2017 to be up on this year”.
The Consumer Pulse fell for a second month running in November, coming in at 88.3, down 4.6 on last month’s reading and a new low for 2016. With the external backdrop unsettled and some industrial unrest at home, households downgraded their assessment of the economy and their own financial prospects this month, and also scaled back expectations for further falls in unemployment. Even so, three in four plan to spend the same or more on Christmas presents this year compared to last, while 36% of retailers expect turnover to increase.
Dr. Loretta O’Sullivan added: “The weakness of Sterling is a headwind for this sector with some consumers set to travel to the North to shop. The festive season is fast approaching and one in five expects to spend more on presents this year compared to last, though some Christmas shopping is likely to be done over the Border.”
The Housing Pulse bucked the broader trend this month, rising to 108.1 and a 2016 high. The share of respondents expecting price gains in excess of 5% over the next 12 months increased in November, with a notable uptick in Connacht/Ulster. Disequilibrium in the market is impacting rents and the cost of renting remains a key worry for two in five households. On the supply side, the November data show that uncertainty and concerns around sustained demand top the list of factors currently limiting building activity.
Dr. Loretta O’Sullivan said: “There has been a series of policy announcements in recent months, including the new help-to-buy scheme for first time buyers and tweaks to the Central Bank’s mortgage rules, which should provide some comfort. A shortage of labour is emerging as a growing issue in the construction sector though, with 37% of builders finding it difficult to get workers. The mismatch between demand and supply is continuing to put pressure on house prices and rents.”
The Bank of Ireland Regional Pulses bring together the views of consumers and firms in different parts of the country. The three month moving averages show that sentiment was down in all regions in November 2016.
Coming on top of the UK’s decision to leave the EU, the outcome of the US election and some industrial unrest at home prompted households across the country (led by Connacht/Ulster) to scale back their expectations for the economy and their own financial prospects this month. Expectations for business activity and hiring over the coming three months were also softer in November, particularly in Dublin.
About the Bank of Ireland Economic Pulse:
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.