Subdued consumer spending growth across European cities

We forecast modest GDP growth of 1.7% on average across European cities in 2024, as higher interest rates continue to weigh on households and businesses. Easing inflation will help alleviate pressures on incomes, but consumer spending growth will remain weak at just 1.4% on average this year, before improving to 2.2% in 2025. Cities in central and eastern Europe will lead spending growth, while some major western cities will trail behind.

What you will learn:

• In 2023, real disposable incomes started to rise again as inflation gradually began easing from its peak in 2022. We expect this to continue this year, with inflation in the eurozone moderating to below 2% as the year progresses and real incomes growing by an average of 2.1% across major European cities. With the expected cuts to interest rates, we forecast consumer spending growth will also improve in 2024, despite higher savings rates compared to the pre-Covid-19 average.
• We expect the composition of spending growth will be uneven, with the strongest expansion across services categories, particularly in transport, communication, and health. Spending on food will rise, but it is likely to be among the weaker categories. Household energy consumption will also increase as recent price volatility calms.
• We forecast certain CEE cities such as Warsaw, Bucharest and Prague to lead consumer spending growth in 2024. As real incomes rebound sharply in these cities over the short term, consumer spending will be a major contributor to GDP growth alongside strong investment spending.