Eurozone | Consumption to drive the recovery, but winter risks loom

Consumer spending took over as the driver of recovery in Q2. We expect similar gains in Q3, leaving spending 3% below pre-pandemic levels. However, the easy gains from reopening are now mostly exhausted and we expect the consumer recovery to slow over the winter. But although the balance of risk is shifting to the downside, we still foresee strong spending gains in 2022.
High-frequency data point to strong momentum in consumer spending. Tourism enjoyed a solid season, which is likely to extend into autumn. Mobility remains strong and social consumption activities saw a solid pick-up in recent months. Our Recovery Tracker shows consumer spending will remain robust in Q3.

What you will learn:

• Vaccination progress should keep infection rates in check in the winter and the death rate has continued to decline, making policymakers and consumers less sensitive to rising Covid infections. Therefore, we don’t see social consumption reversing its recent large gains.
• While there’s still plenty of unsaturated demand for durable goods to make up for any services shortfall over the winter, we expect supply bottlenecks will limit the lift to spending.
• A perfect storm of a worsening pandemic situation pushing consumers to purchasing goods while supply shortages and rising inflation push up prices of durables and dent real incomes could stunt the consumption recovery in the winter.