Thursday, 16 December 2021
Department of Finance
275. To ask the Minister for Finance the extent to which he can encourage consumer spending in a direction that is most beneficial to Ireland’s economy; and if he will make a statement on the matter. [62792/21]
Developments in domestic economic conditions over the pandemic period closely tracked the introduction and relaxation of public health restrictions and are clearly seen in the volatile pattern of consumer spending. While the relationship between consumer spending and the stringency of restrictions has weakened over time, the two variables remain strongly correlated, with the re-introduction of restrictions in the first quarter of this year resulting in a 5½ per cent decline in consumer spending.
However, consumer spending rebounded sharply as the economy re-opened over the course of the second quarter, growing by 14½ per cent on a quarterly basis. This recovery of spending continued in the third quarter, albeit at a more moderate pace. Spending growth of ½ per cent on the quarter was surprisingly soft particularly given that additional contact-intensive services sectors re-opened, the ongoing strength of VAT receipts and the recovery in employment and wages. Nevertheless, consumer spending remains around 1 per cent below the pre-pandemic level despite standing at almost 15 per cent below that level in the first quarter this year.
This rapid recovery in consumer spending was supported by the protection of household incomes throughout the pandemic through the provision of government supports in the form of the Pandemic Unemployment Payment and the Employment Wage Subsidy Scheme. This support to household balance sheets and in-turn to consumer confidence has helped to minimise “scarring effects” of the crisis, a key overarching policy objective. In addition, the Government has continued to provide support to the sectors worst affected by the pandemic, including the reduced VAT rate for the hospitality sector until end-August 2022.
Looking ahead, early indications point toward a continued moderation of consumer spending growth in the fourth quarter, with the recovery expected to continue into next year. This recovery in consumption will be underpinned by a normalisation of household savings following the record increase in savings built up since the start of the pandemic. However, we must be cognisant that if an excessive amount of savings flow into areas where demand is already strong and supply is already under pressure, it could add to current inflationary pressures. In light of these risks, my Department will continue to monitor incoming data very closely over the coming months and act as appropriate.