Ukraine war knocks confidence

Sentiment tumbles as firms and households react to Russian-Ukraine war.

The Bank of Ireland Economic Pulse came in at 84.4 in March 2022. The index, which combines the results of the Consumer and Business Pulses, was down 3.8 on last month but 10.7 higher than a year ago.

Consumer confidence took a big knock this month as households reacted to the escalation of the Russian-Ukraine war and the potential fallout for the economy and inflation.

“The Business Pulse dipped in March as the lifting Covid fog was overshadowed by geopolitical headwinds”

Firms were affected by this latest uncertainty too, with three in five saying that they are finding it difficult to predict the future development of their business situation at present (up from 53% in February).

“Economic sentiment was down this month amid the horror of war in Europe. Russia’s invasion of Ukraine has led to a humanitarian disaster and has clouded the economic outlook just as the fog of Covid-19 was lifting,” said Dr Loretta O’Sullivan, group chief economist for Bank of Ireland.

“Against this backdrop, the Consumer Pulse posted its second biggest monthly drop ever (the fall was around half the size of the pandemic-induced hit to confidence), with the Business Pulse also slipping in March. The uncertain geopolitical situation is a headwind for GDP growth and living costs in Ireland. Much will depend on the duration of the war and on the actions of policymakers, factors which will also shape sentiment among households and firms in the period ahead.”

Business Pulse

The Business Pulse came in at 91.3 in March 2022, down 1.1 on last month but 16.7 higher than a year ago.

“The Business Pulse dipped in March as the lifting Covid fog was overshadowed by geopolitical headwinds,” O’Sullivan explained.

The picture was mixed this month though, with the Services Pulse rising as the post-restrictions rebound continued, whereas the Retail Pulse slipped a little and the Industry and Construction Pulses fell quite a bit against the backdrop of the Russian-Ukraine war. The latter is likely to temper demand and exacerbate existing supply-side issues and cost pressures – firms in all sectors were more circumspect about the three-month outlook for business activity in March, while 83% reported that their non-labour input costs had increased in recent months (up from 79% in February). Even so, over a third (35%) indicated that they expect to spend more on investment this year compared with last year. 

Consumer Pulse

The Consumer Pulse stood at 56.7 in March 2022. This was 14.5 lower than last month’s reading and 13.1 lower than a year ago.

“Concerns for the economy in particular took the Consumer Pulse to a 17-month low in March,” O’Sullivan said.

Heightened uncertainty saw households take a more downbeat view of economic and employment prospects for the coming year this month, while soaring energy prices in the wake of Russia’s invasion of Ukraine added to cost of living woes. Nine out of ten households now think that consumer prices will rise in the next twelve months – up from 82% in February – which contributed to the gloomier assessment of their own finances in the March survey.

Housing Pulse

The Housing Pulse lost ground in March 2022, coming in at 116.1.

“Having reached a new peak last month, the Housing Pulse came unstuck this month,” O’Sullivan noted.

This was down 6.8 on February but 18.7 higher than a year ago. Reflecting the unsettled mood this month, households in all regions pared back their expectations for future house price gains. Expectations for rent increases also dipped across the board.

That said, four in five still think house prices will go up over the next year and three in four think rents will rise as the demand for accommodation remains in excess of the number of properties available to buy and let.

Regional Pulse

The Bank of Ireland Regional Pulses bring together the views of households and firms around the country. The results for March 2022 (3 month moving average basis) show that sentiment was up in Dublin and Munster, broadly unchanged in the Rest of Leinster and down in Connacht/Ulster.

Three month moving averages:

Dublin Pulse:                      91.0 (+4.1 points on the previous survey)

Rest of Leinster:               81.7 (-0.4)

Munster:                             84.6(+2.7)

Connacht/Ulster:             86.4 (-1.5).