More than half of European consumers are now worried about their personal finances and actively cutting spending, according to a new BCG survey. That anxiety, up from 40% in 2024 to 53% now, is dragging down economic growth.
Euro area inflation hit 3.2% in May, pushed by a 10% surge in energy prices. The European Commission projects GDP growth of just 1.1% for the year, while private consumption growth is forecast at the same anemic level.
ECB surveys show median consumer inflation expectations have reached 4% for the next 12 months. That expectation is driving consumers to hoard cash rather than spend, even as the central bank raises interest rates to tame prices.
Energy remains the root cause. Geopolitical tensions in the Middle East and Europe's heavy dependence on imported oil and gas make the region particularly vulnerable to global price shocks.
For investors, the squeeze on consumer spending tightens liquidity across the financial system. Rising ECB rates make government bonds more attractive relative to volatile assets like cryptocurrencies. The key metric to watch is that 4% inflation expectation: a sustained drop could signal a recovery in confidence and spending.