There was a slight improvement in confidence among consumers and businesses in August, according to the latest Economic Pulse from Bank of Ireland.
However, the uplift in mood was from a very low base and the overall Pulse reading sits at well below where it was last year.
Consumer confidence remains subdued at just under the Covid-19 low-point captured in this report.
Households were less downbeat about the current state of the economy and their own finances, it concluded.
Some of the recovery in sentiment is attributed to next month’s budget which is expected to focus on cost-of-living issues.
Buying sentiment remained depressed, however, with just 15% of respondents believing it was a good time to purchase big ticket items.
On the commercial side, there was a slight improvement in confidence among businesses in the month but, again, it remained well below where it was last year.
The report captured a mixed picture among different sectors with Services and Retail making up some lost ground, but Industry and Construction remained under pressure.
“While the costs and sourcing backdrop is still challenging for many businesses, the August data add to nascent signs that supply chains are healing,” Loretta O’Sullivan, Group Chief Economist with Bank of Ireland said.
She cited a small reduction in the share of firms reporting an increase in non-labour input costs.
“Recent shocks to the Irish economy – Brexit, the Covid-19 virus and Russia’s invasion of Ukraine – have been idiosyncratic in nature and their after-effects are still playing out, making for uncertain times,” Dr O’Sullivan said.
“The removal of pandemic-related restrictions earlier this year is a tailwind and employment has rebounded strongly, but the deterioration in UK-EU relations of late is a headwind and elevated global energy prices as a result of the war are adding to inflation,” she added.
A Regional Pulse – captured as part of the overall Economic Pulse and calculated on a three-month moving average – shows sentiment down across the board in the June to August period.
This month’s survey was conducted before SSE Airtricity announced an impending energy price hike late last week, a move that is sure to be followed by other providers.
It would suggest that this month’s reprieve in a hit to confidence could be followed with more drops in the months ahead.
“We’re in for a bumpy ride,” Loretta O’Sullivan told Morning Ireland.
“We saw a broad based improvement among consumers this month. Some of that was to do with looking ahead to the budget and the expectation that it will be a cost of living budget to help with challenges, but overall sentiment remains very subdued at just under its Covid-19 nadir,” she explained.
Households are also preparing for a spate of further interest rate hikes following the 0.5% increase announced by the European Central Bank last month.
There were suggestions over the weekend that the ECB Governing Council could consider introducing a 0.75% rate hike next week, although markets are still pricing in another 0.5% rise.
“The ECB are in a situation where they’re trying to get a handle on prices and control inflation,” Loretta O’Sullivan said.
“That’s difficult to do while not completely killing off the economy,” she said.
The data from the Bank of Ireland Economic Pulse survey fees into the EU Commission’s Joint Harmonised EU Programme of Business and Consumer Surveys, a Europe-wide sentiment study running since the 1960s.