Irish Confidence Rises as Consumers Adjust to Austerity Measures

Irish consumer confidence rose to its highest level in five months in February as households adjusted to budget cuts and fears of job losses began to ease.

The consumer sentiment index increased to to 50.3, the highest since September, from 48.7 in January, KBC Ireland and the Economic & Social Research Institute in Dublin said today in an e-mailed statement. A gauge of consumers’ expectations also improved.

“We had feared a weaker reading last month as a result of the impact of budget 2011 measures on spending power and heightened focus on Ireland’s economic problems through the general-election campaign,” Austin Hughes, chief economist at KBC Ireland, said in the statement. The improvement “suggests some possibility that the adjustment of households to difficult circumstances may not be quite as traumatic as feared.”

Ireland’s outgoing Finance Minister Brian Lenihan introduced 6 billion euros ($8.4 billion) of spending cuts and tax increases in the 2011 budget in December. Consumers are set to face further austerity measures as Fine Gael and Labour, which became the two largest parties in the parliament after the Feb. 25 election, aim to cut the budget deficit to the European Union limit by 2015.

Ireland was granted an 85 billion-euro aid package in November as it struggled with the cost of rescuing its banking system. The bank-bailout costs pushed the deficit to 32 percent of output last year, compared with the EU limit of 3 percent.

A measure of consumers’ expectations of their financial situation, the economy and employment prospects rose to 37.8 in February from 31.5 in January. KBC’s gauge of how consumers viewed their current situation slipped to 68.9 from 74.2.

“There is little question that the current spending habits of Irish consumers are very restrained and the February reading points toward the persistence of subdued spending patterns,” said Hughes. Still, the “broad message” is that “sentiment is showing tentative signs of stabilizing.”

It may take a few more months before it is clear if sentiment “has bottomed out,” Hughes said.

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