The pandemic will leave serious financial scarring with the economic fallout expected to last for up to two years, many households believe.
A new report warns that more than half of consumers feel that Covid-19 has had a negative impact on their financial circumstances.
This is compared with just 12pc who saw an improvement over recent months.
The results from the KBC Bank Consumer Confidence Index for February are an indication that Covid-19 is set to have a lasting financial legacy.
Many households are spending more on costs like heating and electricity at a time when their incomes are down.
A question asked as part of the index found that 51pc of consumers feel the pandemic has had a negative impact on their financial circumstances.
It is the first time since the outbreak of the virus last year that a survey has picked up on such a pronounced negative financial impact to households from the pandemic.
The majority of those seeing negative effects expect them to last more than a year.
Up to now, many thought the big economic issue would be a build-up of savings and how this would lead to pent-up demand that would unleash a gush of spending.
“Permanent scarring is a bigger issue than pent-up demand for Irish economic outlook,” KBC Bank chief economist Austin Hughes said.
He said large numbers of households are spending more on grocery bills and utilities than previously.
This is due to the fact that so many people are stuck in their homes as their employers have been forced to shut temporarily, with others working from home.
Consumers have given a weaker assessment of their financial circumstances over the past year. This largely reflects the derailment of many of the normal elements of life that people would have previously have taken for granted.
“For some of those most directly affected by restrictions on activity, media focus during the survey period on the potential tax implications of pandemic payments may also have weighed on views in relation to personal finances,” Mr Hughes said.
This related to the decision of Revenue to collect tax due on PUP this year, rather than spreading out the income tax due as happened with PUP payments for last year.
The economist is still expecting consumer boom later this year, but he said the survey results would temper this.
“Although we expect a material increase in spending, some significant portion of the sharp increase in savings through the past year is likely to remain as a protection against future rainy days.”
Just over a third of those surveyed said their finances have not been impacted by the pandemic. Most respondents expect that negative impacts will take one to two years to end.
The finding that so many people have been hit hard financially is despite consumer sentiment improving in February.
The rise was put down to stronger expectations for activity and employment in the coming year as vaccine hopes, slowing virus numbers, and positive economic data combined to give some hope to consumers.
The KBC Bank consumer sentiment index increased to 70.8 in February from 64.9 in January, a 5.9 point gain that reversed more than half of the 9.7 point drop between December and January. But consumers remain cautious, with the sentiment index still short of the now 25-year average.
Source: Irish News