War and Inflation to Cost Europe $73B in Lost Consumption This Year
June 9, 2022
European consumers dealing with record inflation and worried about the war in Ukraine are likely to are likely cut back on spending this year, dealing a blow to the region’s post-pandemic economic recovery, according to research from German finance firm Allianz.
Economists estimate that lost consumer spending in the eurozone would add up to 70 billion euros, or about $73.6 billion, in 2022. That amounts to about 500 euros per household.
Consumer spending in the eurozone began slowing at the end of last year and declined by 0.7% in the first quarter as consumers grappled with surging inflation.
Allianz researchers expect personal consumption to fall in the second and fourth quarters, but to remain relatively strong during the third quarter, buoyed by higher spending on travel and hospitality throughout the summer vacation season.
Primarily responsible for slowing consumption is that consumers have less discretionary income while food and energy costs surge. Allianz estimates that households will spend an average of 550 euros more on food this year, while energy prices are expected to climb more than 750 euros per household.
At the same time, the savings rate for the region is projected to fall back to pre-pandemic long-term averages by the year’s end. While consumers in the region have amassed more than 380 billion euros in excess savings, Allianz researchers noted that these savings are unevenly distributed across income groups, with the lowest income households having savings of just 93 euros.