Why the consumer recovery is delayed, not derailed

Latest data point to a delayed start to a consumer revival in the eurozone, but we see relatively low risk of it being derailed. Even with a slow start, it’s unlikely to throw the rebound off course – plus there’s a chance of make-up growth in H2. We expect private consumption to grow 1.2% in 2024 overall.

What you will learn:

• In our view, the key factor holding back consumers from loosening their purse strings is tight monetary policy. The eurozone household savings rate has stabilised around 3ppts above pre-pandemic levels. We think this reflects expediency rather than caution – after a decade of near-zero rates, households are getting around 3.5% interest on their deposits, made even more attractive by easing inflation.
• Consequently, we think it’s likely that the consumer recovery won’t begin in earnest before the ECB starts cutting. Once the recovery does get underway, we expect the strongest gains in durable goods as this sector should benefit from make-up spending and ongoing deflation. Meanwhile, sticky inflation in services will likely translate into weaker gains in that segment.
• Risks to the consumption recovery stem from a later start to, or a slower pace of, policy rate normalisation by the ECB. We think this would postpone, but not derail, the recovery. Also, labour market deterioration could dampen wage growth and push up precautionary savings. However, we think loosening in the labour market is likely to be mild.