Q2’s resilience doesn’t mean European consumer spending is set to take off

Consumer spending showed surprising resilience in Q2, growing by 0.4% quarter-on-quarter, but this strength may be overstated. A slowdown is anticipated in H2, driven by inflation and a decline in household savings.

One-off factors, such as fiscal support for lower-income households and a surge in electric vehicle purchases, contributed to Q2’s growth. Despite rising staples’ prices, lower-income households’ spending has held up surprisingly well.

However, spending on hospitality services has softened, indicating potential precautionary cutbacks among consumers. A decline in households’ savings rate contributed to stronger spending, but this is unlikely to continue in the coming quarters due to elevated uncertainty and interest rates.

The expected slowdown in consumer spending is primarily linked to real income challenges rather than interest rates. Inflation in food and energy prices is likely to impact purchasing power significantly, although the risk of a consumer recession remains low.

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