Eurozone consumers are keeping their wallets shut, raising doubts about the economic recovery they were expected to drive.
Despite a strong start to the year, growth across the 20-nation bloc is faltering, with sluggish manufacturing and households unwilling to spend, leaving economic sentiment below pre-pandemic levels.
With inflation nearing 2%, some European Central Bank (ECB) officials are eyeing further interest-rate cuts to combat the downturn.
Investors and analysts warn that if the economic weakness persists into 2025, more aggressive monetary easing may be on the table.
Sluggish growth is becoming a growing concern for the ECB, according to Simon Wells, chief European economist at HSBC, who suggests weak consumption could push policymakers toward a more dovish stance.
The ingredients for a consumer rebound seem to be in place: inflation has eased from its peak, unemployment is at a record low, and incomes are rising faster than prices. Yet, despite lower borrowing costs, consumer spending remains stagnant.
Household consumption dropped 0.1% in the second quarter, according to Eurostat, with Germany — the region’s largest economy — seeing a steeper decline as confidence wanes due to layoffs and corporate struggles.
Even major events like Germany hosting the European soccer championships and France preparing for the Summer Olympics have failed to spark spending.
The latest blow came from Volkswagen AG, which hinted at plant closures in its home market for the first time in its 87-year history.
Southern Europe, though faring slightly better, is not immune. Italy and Spain are scaling back cost-of-living relief, adding to consumer caution.
Households may expect less favorable fiscal policies in the coming year, said Laurine Pividal, an economist at Coface, as government support programs taper off.
This consumer hesitancy challenges the ECB’s forecast of a 0.9% GDP rise this year.
Retail sales, rising just 0.1% as the third quarter began, also suggest weak momentum.
The ECB’s latest consumer survey revealed that spending expectations are at their lowest since February 2022, when Russia invaded Ukraine.
Despite these signs, some economists remain cautiously optimistic.
The Bundesbank recently suggested that higher earnings should gradually lead to increased spending, while Fitch Ratings predicted a modest recovery in eurozone growth, though delayed.
Whether this anticipated revival comes soon enough to stave off further rate cuts is a pressing concern for business leaders and policymakers alike.
For now, it seems consumers are in no rush to bring about the economic bounceback the ECB has been counting on.
You May Also Like:
