Retail sales had been recovering from mid-2023 until the first quarter of this year. But the heating up of the trade war seems to have coincided with a more cautious European consumer. Indeed, confidence dipped significantly in April but did recover somewhat in the months after when it became clear that the trade war did not escalate. Still, retail trade volumes have remained largely unchanged since then, which suggests that the third quarter is also likely to be a muted one for consumer spending again.
The fundamentals for eurozone household spending do remain strong. Wage growth remains well above inflation at the moment, which means that real wage growth remains positive. We expect this to level off in the coming quarters, but the hit of the inflation shock of 2022 has been recovered.
So the question remains: will consumers dare to spend some of their income gains, or will they mainly save up? The latter has been the answer recently, but there does seem to be some light at the end of the tunnel. Despite being concerned about the general economic situation and more worried about possible increases in unemployment, the latest confidence survey showed a rebound in consumer confidence, indicating that they plan to make a major purchase in the coming year. For 3Q, don’t expect a strong increase in spending yet, though.
