Euro area private consumption

Private consumption expenditure in the euro area has been subdued since 2022, almost stalling in sequential terms on average. High inflation and high savings are the main reasons for the sluggishness, but structural factors also play a role. 

The improvement in real labour income dynamics creates the conditions for consumption to pick up. However, this recovery will not be a surge, as wage growth is expected to have peaked and the propensity to save is likely to remain high.

Risks to this scenario are high and mainly related to household saving behaviour: should political uncertainty increase, inflation reappear or fiscal policy tighten sharply, rising savings would weigh on consumption dynamics and vice versa.