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Economic confidence rocked by Covid rise

Economic sentiment fell backwards in August for the first time since the country began to emerge from lockdown and despite the Government’s Stimulus Package announced on July 23.

Ireland is an outlier with European Commission data on Friday suggesting economic confidence in the euro area as a whole had continued to improve in August.

Here though, August has seen Government heighten social and economic restrictions on advice from the national public health emergency team (Nphet), including the ongoing county-level lockdown in Kildare and, earlier, in Laois and Offaly.

Bank of Ireland chief economist Dr Loretta O’Sullivan said it means the slip in sentiment was not a surprise.

“The rise in virus cases at home and overseas has rattled nerves, while the rebooting of the economy has hit some speed bumps with the re-opening of ‘wet’ pubs pushed out, confusion over the travel Green List and the imposition of local lockdowns in three counties,” she said.

The Bank of Ireland Economic Pulse combines the results of data tracking consumer and business sentiment into a single index. It fell in August and although the decline was small it followed three straight monthly increases.

Sentiment matters because it determines whether households or businesses have the confidence to invest and spend. The chances of a swift recovery from the recession prompted by the Covid pandemic and associated lockdown will depend on how quickly sentiment recovers.

In June and July retail sales bounced back better than many had predicted, buoyed by pent-up demand and consumers’ belief that the worst of the crisis was behind, but that may now have petered out.

“There is a growing sense emerging nationally that things may be somewhat ‘stop-start’ over the coming months.

“This emphasises the importance of clear communication on the direction of public health and economic policy, which should serve to lessen the uncertainty facing households and firms,” Dr O’Sullivan said.

The latest data suggests the July stimulus package of around €7bn of supports, spending commitments and loan guarantees that was announced by the new coalition Government was not enough to counter the darkening mood.

Any impact from the stimulus will also be delayed because some of the measures, such as a tax break to encourage consumers to holiday at home and eat out, will not come into effect until well into the autumn.

Meanwhile, details of the €2bn credit guarantee scheme for business have still to be fleshed out.

Rising Covid outbreaks in August resulting in the Laois, Offaly and Kildare lockdowns and the reintroduction of increased restrictions nationally appear to have put a big damper on that mood.

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