The Bank of Ireland Economic Pulse declined 3.8 points in March as consumer sentiment took a big knock following Russia's invasion of Ukraine and its effect on inflation and the wider economy.
The index measured 84.4 last month, down from 88.2 in February but up 10.7 points from 73.7 in March 2021, as the cost of living and fuel prices continued to rise amid the ongoing geopolitical uncertainty.
Business confidence was also shaken, 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," Dr Loretta O'Sullivan, group chief economist for Bank of Ireland, said.
"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.
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"The uncertain geopolitical situation is a headwind for GDP growth and living costs in Ireland. Much will depend on the duration of the conflict and on the actions of policymakers, factors which will also shape sentiment among households and firms in the period ahead," Dr O'Sullivan added.
The Consumer Pulse fell 14.5 points month-on-month and 13.1 points year-on-year to 56.7 in March, with confidence down as nine in 10 households believe prices will rise in the next 12 months and many making a "gloomier assessment" of their own finances.
The Business Pulse measured 91.3, down 1.1 from February but rising 16.7 points year-on-year, with services the only sub-index to rise this month, increasing 2.5 points to 92.4.
Conversely, the Industry Pulse fell 6.7 points to 89.5, the Retail Pulse dropped 2.3 points to 87.6, and the Construction Pulse declined 13.6 points to 93.3, with the Russia-Ukraine war tempering demand exacerbating existing supply-side issues and cost pressures.
Some 83% reported that their non-labour input costs had increased in recent months, up from 79% in February, but even so, over a third (35%) indicated that they expect to spend more on investment this year compared with last year.
The Housing Pulse also lost ground in March, declining 6.8 points to 116.1, but it remains 18.7 points ahead of the same point last year, with four in five now expecting house prices to increase over the next year and three in four predicting that rents will rise.
In the regions, sentiment rose 4.1 points in Dublin (91) and 2.7 points in Munster (84.6), but the reading in the rest of Leinster (81.7) and Connacht/Ulster (86.4) fell 0.4 and 1.5, respectively.
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