European Economics

Consumer slowdown should prove temporary

European Chart Book
Written by Capital Economics Economist

Q2’s slowdown in GDP growth to just 0.3% q/q dealt a blow to hopes that the softness of growth in the first quarter would be a one-off. While no breakdown is available yet, timely data from France and Spain suggest that the weakness reflected a drag from net trade and a marked slowdown in consumer spending growth. There are good reasons to think that consumer spending will accelerate again. For a start, the recent slowdown has reflected an energy-related rise in inflation, which we expect to be partly reversed in the coming months. Retail sales data show that the value of high street spending is still rising strongly, which is an encouraging sign. What’s more, unemployment has continued to fall, suggesting that wage growth should soon edge up. And while it is possible that households will save any additional income in future, the still-high level of consumer confidence suggests that they are more likely to spend it.