High hopes despite high prices: An update on European consumer sentiment

A sunnier outlook emerges in Europe. German consumers report the highest increase in net confidence, at 13 percentage points (up from –34 in September 2022), as well as the highest level of optimism—31 percent of respondents say they expect their country’s economy to rebound within two to three months and grow just as strong or stronger than it was before the conflict in Ukraine began. Meanwhile, French consumers report being the least optimistic, with 29 percent believing that the current crisis will have a lasting impact on the economy, with the possibility of a lengthy recession. (Across the continent, approximately one in five consumers expect the economic situation in their country to worsen.)

As has been true for the past two years, younger consumers and higher-income consumers report the highest confidence in a rapid economic recovery.

Consumers are coping with continuing price increases. Eight out of ten European consumers say they are taking actions to alleviate the ongoing pressure on household income. One in three consumers say they track their expenses more carefully, while just under a third say they are reducing their savings rate and dipping into their savings to cover expenses. And it’s not just low-income consumers taking these actions—higher-income consumers are adjusting their spending habits, too.

European consumers say they’re spending less on all categories. Shoppers are buying fewer items and purchasing lower-priced alternatives. Given persistent inflation, however, their total spending may remain the same, even when making fewer purchases. Older consumers are most likely to reduce their spend across categories.

Consumers are reducing their spending the most in nonessential categories such as fashion, home decor, and dining out, while largely maintaining their spending on groceries, baby supplies, personal care, and pet supplies.

“Fewer” and “smaller” characterize purchases. Looking for ways to stretch their income further, European consumers are claiming to trade down across categories in a variety of ways. Increasingly, Europeans are purchasing fewer or smaller items to reduce their spending, particularly when it comes to buying fresh produce and meat and dairy products. Shopping around for the best deals and buying in bulk remain popular strategies, while one in ten consumers say they would also switch to lower-priced retailers and lower-priced brands in the pursuit of savings.

Saving leads to splurging. Money-saving actions don’t present the full picture of the European consumer experience of late: there’s also an intent to splurge, which is highest in Germany (where economic optimism is highest) and lowest in the United Kingdom. Like their American counterparts, European Gen Zers indicate the highest interest in splurging.

Among the roughly one-third of European consumers who plan to splurge, they express the highest intent to splurge on experiences, such as travel and dining out, and on fashion—the same categories in which they say they’re looking to save money. This indicates a strong intent to “save up” to splurge, meaning consumers might be spending less on those things daily so they can treat themselves to spend more later on.