Eurozone retail sales rose by a modest 0.1% in August compared to July, marking a period of stagnation that has persisted since April. Despite improvements in household purchasing power, consumers appear increasingly cautious, limiting their spending in a climate of economic uncertainty.
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Retail sales had been recovering from mid-2023 through the first quarter of 2025, but the intensification of trade tensions seems to have tempered consumer activity. Confidence dipped sharply in April, but partially recovered when fears of an escalating trade war subsided. Nevertheless, retail trade volumes have remained largely unchanged, suggesting that the third quarter is likely to see only muted consumer spending.
"The fundamentals for eurozone household spending do remain strong," said Bert Colijn, Chief Economist at ING Netherlands. He noted that wage growth currently outpaces inflation, ensuring positive real wage growth, and emphasised that the inflation shock of 2022 has been largely absorbed.
The key question for the coming months is whether consumers will channel their income gains into spending or continue saving. Recent trends indicate that cautious saving has prevailed, although the latest confidence survey showed a rebound in consumer confidence, indicating plans for a major purchase in the coming year. Despite this, ING analysts caution that strong increases in spending for the third quarter are unlikely.
The report highlights a disconnect between solid economic fundamentals and consumer behaviour. While eurozone households benefit from favourable real incomes, broader concerns about the economic outlook and potential job losses are tempering retail activity. This pattern of prudent spending is seen across sectors, reflecting a continued wariness among European consumers even as macroeconomic conditions improve.
Retailers and policymakers face a challenging environment as they navigate this period of stagnation. The limited growth in retail sales underscores the importance of understanding consumer sentiment, which is gradually recovering but remains cautious.
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