Momentum in economy building, Bank of Ireland’s Economic Pulse shows
Bank of Ireland’s Economic Pulse came in at 89.5 in May – back above its pre-pandemic level – which bodes well for a pick-up in spending as public health restrictions are lifted.
Bank of Ireland said it had revised upwards its GDP growth forecast for 2021 to 5.8% from 5% in February.
The Economic Pulse combines the results of the Consumer and Business Pulses.
The May Pulse was 4.1 higher than last month and up 45.6 on a year ago when the country’s first strict Covid-19 restrictions were still in place.
Bank of Ireland said that with a further loosening of restrictions on social interactions in May, the resumption of inter-county travel, some sectors emerging from lockdown, the remainder of construction, personal services and non-essential retail (by appointment) returned during the May survey period and others getting ready for lift-off, the consumer and business mood brightened this month.
“Plenty of reopening optimism in our economic pulse data this month,” said Dr Loretta O’Sullivan, Group Chief Economist with Bank of Ireland.
“We also see other factors contributing to an improvement in the economy, things like the unwinding of the involuntary savings that many households built up during the crisis, and also the fact that the global economy has returned to growth so the combination of factors has led us to revise upwards our GDP forecast to 5.8%.”
The increase in opportunities to spend lifted household buying sentiment, while firms saw their order books improve.
The Business Pulse stood at 92.7 in May 2021, up 3.8 on last month’s reading and 51.3 higher than a year ago.
All four sectoral Pulses – Industry, Services, Retail and Construction – were firmer this month as the re-opening of the economy progresses.
But the May data also pointed to growing inflationary pressures, with 78% of construction firms, 67% of firms in industry and 48% of retailers reporting an increase in non-labour input costs in the past three months.
Bank of Ireland said this is mainly due to post-Brexit red tape, with rising global commodity prices also a factor for some.
It also cautioned that some impact for consumers also looks to be on the cards, with just over two thirds of builders and almost half of firms in industry and retail indicating that they expect to increase their selling prices in the near term.
At 76.7 in May 2021, the Consumer Pulse was up 5 points on last month and 22.8 higher than a year ago.
Bank of Ireland said that households upgraded their assessment of the economy and prospects for jobs this month as the easing of restrictions continued.
They were also more positive about their current finances and with the vaccine roll-out advancing, a third indicated that they expect to spend more on holidays this year compared with last year.
The Housing Pulse rose 4.3 in May 2021 to come in at 112.3, 87 higher than a year ago and the 13th consecutive monthly gain for the index.
Three quarters of households think house prices will increase over the next year as supply continues to trail a long way behind demand and the construction sector struggles with labour, material and equipment shortages.
On the rental front, expectations also tracked higher this month, with almost two thirds of survey respondents now anticipating rent increases over the coming year.
“But as this month’s Pulse surveys also show, post-Brexit trade frictions are adding to business costs and the potential spill-over to consumer prices from this and the unlocking of pent up demand will be something to watch out for as the year progresses,” Dr O’Sullivan cautioned.
“There is definitely an upward pressure around prices coming through in the data and we’ll also have to be looking carefully to see what potential spill overs there are to consumer prices coming from these additional business costs on the back of the post-Brexit red tape and also potentially from the pent up demand that we know is going to come from through in the next few months and how that impacts consumer prices.”