EU Consumers Tighten Belts as Cost of Living Rises

Rising interest rates and energy costs have forced consumers in Europe to start reducing their discretionary spending.

As The Financial Times (FT) reported Sunday (Oct. 30), spending on cars, movies and hotel bookings have all dropped, with consumers drastically reducing their plans for major purchases. Overall spending has continued to rise, the report said, but the quantity of products being purchased is falling amid continued inflation.

“Consumers are tightening their belts, preserving income for heating and other necessities,” Melanie Debono, senior Europe economist at Pantheon Macroeconomics, told the Financial Times.

The report noted that consumer sentiment is declining amid warnings of a recession in many European countries. Nevertheless, the European Central Bank is pressing ahead with raising interest rates to deal with rampaging inflation.

Consumers in Europe are “absolutely feeling the purchasing power squeeze,” said Bert Colijn, an economist at ING. “Clearly, the consumer has to make choices about what to spend on.”

Debono told the FT she expects spending to drop in the last quarter of the year “as the squeeze on households’ real income forces them to save more and forego some spending to ensure enough funds for heating this winter.”

Read more: Retailers Race to Respond as Consumers Recoil From Inflation

Of course, the situation is not confined to Europe. The PYMNTS study Consumer Inflation Sentiment: Consumers Buckle Down On Belt-Tightening notes that two-thirds of retail consumers report spending less on “nice to have products” versus a year ago, with 58% of grocery shoppers saying the same.

While consumers are cutting back on their nonessential retail and grocery spending, this belt-tightening has hit retailers much harder than grocers.

The fear of the advent of a full-blown recession will benefit some, such as the deep discounters, as well as lower-priced restaurant chains, as consumers hang onto some spending rituals — like dining out — but at less pricey places. And less expensive restaurants will be contending with increased competition from diners eating at home to save money.

For all PYMNTS EMEA coverage, subscribe to the daily EMEA Newsletter.