One doesn\u2019t have to be a big economist to conclude that as concerns about geopolitical tensions intensify, consumer confidence is being hit harder.<\/p>\n\n\n\n
A striking example is what is happening in the US, where the trade war declared by Trump has dragged consumer confidence into tatters. Specifically, based on a new measurement by the University of Michigan, the consumer confidence index has fallen to its lowest point since 1952, when records began to be kept, to levels much worse than during the \u201cGreat Recession\u201d of 2008-9.<\/p>\n\n\n\n
But clouds are gathering in Europe as well. New research signed by five academic economists and executives of the European Central Bank (ECB) studies exactly how “war scenarios” and their different versions interact with consumer perceptions and behavior.<\/p>\n\n\n\n
Consumer confidence in the Eurozone is declining<\/strong><\/p>\n\n\n\n As noted, the percentage of consumers expecting a recession and predicting a deterioration in their own financial situation has been increasing since the summer of 2024.<\/p>\n\n\n\n Economists express surprise at the escalation of pessimism across the Eurozone, at a time when incomes are theoretically recovering, as inflation slows and wage increases have taken place.<\/p>\n\n\n\n That is why they are adding the \u201cwar\u201d factor to the equation, focusing mainly on the Middle East and Ukraine. The experimental research did not include the issue of tariffs in the mix. However, it is safe to assume that the trade war will have an equally, if not more, negative impact on consumer confidence.<\/p>\n\n\n\n War Scenarios<\/strong><\/p>\n\n\n\n The researchers’ methodology examines consumers’ reactions and what they expect to happen in their country over the next 12 months, in three different geopolitical scenarios: If the conflicts and geopolitical tensions were resolved immediately within three months, if they lasted for at least a year, and if they continued for another three years or more. They were asked to answer to what extent they believe the prices of goods and services, the national economy, their personal financial situation and real estate prices would be affected.<\/p>\n\n\n\n The results of the survey showed that consumers’ expectations are related to the estimated duration of the wars and geopolitical tensions.<\/p>\n\n\n\n The longer they believe the conflicts will “draw out”, the more gloomy they see things, mainly for the economy as a whole and secondarily for their household.<\/p>\n\n\n\n For example, in the scenario of resolving geopolitical conflicts in the short term, one in three expects a decrease in prices, six in ten economic growth, and about one in four expects an improvement in their financial situation.<\/p>\n\n\n\n In the worst-case scenario, of (at least) a three-year extension of the wars, almost 80% believe that the prices of goods and services will increase, more than half expect an economic recession, while almost four in ten expect a deterioration in their finances (the highest percentage of all scenarios).<\/p>\n\n\n\n Fears of Stagflation<\/strong><\/p>\n\n\n\n The main finding is that consumers associate geopolitical conflicts and their duration primarily with supply-side shocks. Their fear reflects fresh memories of the surge in energy prices and the disruption to supply chains immediately following Russia\u2019s invasion of Ukraine.<\/p>\n\n\n\n The second observation is that households feel that the impact of the conflicts on their own economic well-being will be relatively smaller than the impact on their country\u2019s economy.<\/p>\n\n\n\n A possible explanation for this mismatch, the ECB economists point out, is that households are pinning their hopes on extraordinary government support measures, at least for a 12-month period.<\/p>\n\n\n\n A third observation is that consumers\u2019 expectations for house prices are not particularly affected by the expected duration of the conflict. This could reflect the relative resilience of the housing market in most Eurozone countries in recent years. Consumers may also view home ownership as a safe haven in times of economic turmoil.<\/p>\n\n\n\n One finding not reported in the survey, but emerging from consumer responses, is that Eurozone citizens see a scenario of stagflation (inflation and recession) as highly likely as tensions continue. This is a concern that has resurfaced more sharply amid the trade war.<\/p>\n\n\n\n Reduced spending<\/strong><\/p>\n\n\n\n The decline in consumer confidence due to geopolitical tensions translates into cautious spending, which in turn acts as a drag on economic growth.<\/p>\n\n\n\n The results of the ECB consumer confidence survey showed that poor households are much more worried about the negative effects of wars than the wealthier ones. For example, they are much more afraid of losing their jobs or that an economic crisis will come to their country. This in turn makes them cautious in their financial decisions.<\/p>\n\n\n\n Greek consumers \u2013 who have the lowest purchasing power in the Eurozone \u2013 are more worried than anyone else about rising prices, but also about the deterioration of their finances. The French are the least worried of all, although they also expect a deterioration. The Portuguese, the Finns and the Germans are very close to the Greeks in terms of their level of concern.<\/p>\n","protected":false},"excerpt":{"rendered":" One doesn\u2019t have to be a big economist to conclude that as concerns about geopolitical tensions intensify, consumer confidence is being hit harder. 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