The Deepest Anxiety

In a previous post I noted the power of long term expectations as an influence on consumer sentiment and behaviour. Robert Shiller argues that people's deep anxieties and fears can influence their spending (and borrowing and saving) decisions over the long term.

Unfortunately we don't have an equivalent in Ireland to the Thomson-Reuters University of Michigan Consumer Sentiment Index question on long term expectations for the economy that Shiller uses.  Just to remind you, the question is:

“Looking ahead, which would you say is more likely – that in the country as a whole we’ll have continuous good times during the next five years or so, or that we will have  periods of widespread unemployment or depression, or what?”

However, a report published yesterday by the European Parliament on Europeans and the Crisis sheds some light on long term expectations. They surveyed nearly 27,000 Europeans last month. The question is:

"When it comes to a return to growth in (respondent's country), which one of the following opinions is closest to your own?"

I've copied the relevant chart from the report for Ireland.  Nearly half (49%) of all adults in Ireland think that when it comes to a return to growth in Ireland the crisis is going to last for many years. A significantly higher proportion than in the whole of Europe. It isn't obviously the same question as used by Shiller, but it does shed some similar light on long term expectations.

Consumer sentiment is now in 'lock down' mode in Ireland as the domestic economy (especially consumer spending) enters its fifth year of contraction. This is crucially important ahead of Budget 2012. Of course, the psychological impact of previous governments' budgets has been a consideration before. Though certainly not the main consideration. However I suspect as Budget 2012 looms large in the public imagination then it may well turn out to be one of the most psychologically important budgets in recent years.