Retail sales in eurozone plateaued in early 2024. Soaring inflation, recession fears and war in Ukraine have weighed heavily on consumer spending across the region. There was a modest drop of 0.1% in March from February. Real retail sales have actually been flat going back to September 2024. This comes after a modest rebound in local spending over the last four quarters, even with this slight decrease. Consumer confidence has dropped every month since November 2022. This national downward trend for 2023 is leading to an overall graying and stagnation of the economy.
Consumer sentiment suffered a major blow in April amid the deepening trade war, adding to fears over global tensions and lingering uncertainties in the eurozone. Consumers have started to retreated from purchasing goods, a sign of their fears about the current state of the economy. Continuing instability has been rattling confidence. These issues have been compounded by geopolitical tensions, as illustrated by the recent US elections, which have added yet another level of uncertainty.
Thus, WAGE GROWTH IN THE EURZONE provides a different story, and a more optimistic story. With contracted wages regularly surpassing 4% since the beginning of 2023, this has offered consumers a bit of respite as the cost of living continues to increase. Economic growth remains healthy and inflation has been stable at just over 2%. This is a recipe for real wage growth to begin outpacing inflation. This trend should help to support some moderate strengthening in consumer spending going forward.
Consumers in the eurozone will continue to be worried about the global economic climate. Wage increases provide a first measure of long-needed financial relief. Lingering uncertainty over international trade and other economic policies is keeping consumer expectations in check. As we’ve discussed here, given all these positive wage developments, retail sales have actually been quite stagnant.
This confluence of higher labor costs and inflation cooling offers a complex double-edged sword for eurozone retailers. Retailers are concerned that consumers would not be ready to spend given current macroeconomic uncertainties. If consumer confidence returns, we may be able to salvage some modest growth in retail sales. Some analysts are saying once consumers feel more secure in their finances, spending will slowly pick up.