Europe’s Consumers Send a Warning Signal on Growth

Europe's economy is defying expectations, but growth is fragile and hinges on consumers. Despite inflation and high energy costs, household spending rose 0.4% in the second quarter, supported by drawing down savings. This resilience is key, but saving intentions are rising, signaling potential future weakness.

Unlike their US counterparts, European consumers are less exposed to market wealth effects. This makes them more vulnerable to inflation and interest rate hikes. With real incomes losing momentum and further ECB rate hikes possible, consumers could shift from supporting growth to becoming its biggest risk. Investors should monitor consumption trends closely.